Prabhudas Lilladher's research report on UltraTechCementUltratech cement (UTCEM) entered into a binding memorandum of understanding (MoU) with Jaiprakash Associates (JPA) for the acquisition of 18.4m tonnes of operational cement capacity at a consideration of Rs165bn. In addition, UTCEM will spend Rs4.7bn on completion of ongoing addition of 4m tonnes. Transaction looks attractively placed on valuations with an EV/t of USD110 and complementary fit to UTCEM's exisiting regional presence with entry to the newer markets of Satna (MP), Eastern UP, HP and coastal AP. Most importantly, we believe that exit of JPA would restore pricing power to the sector, devastatated by its irrational pricing and ill‐focussed marketing strategies. Assuming 70% utilisation and EBITDA/t of Rs800 in acquired assets, deal would be EPS dilutive in FY18 due to low margins. We believe that margins of acquired assets would improve to UTCEM's level of Rs1000/t in a year's time on the back of higher realisations (solely driven by brand premium) and cost reduction (on the back of higher scale and change in fuel mix). While, interview with CNBC‐TV18, CFO mentioned that acquired plants are operating at ~60% utilisation with EBITDA/t of Rs600‐700. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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