This deal may not attract as much attention of competition commission given the assets are in the Satna cluster , says the brokerage
Brokerage house Deutsche Securities has raised its target price of UltraTech Cement by 4 percent to Rs 3050 after the company Tuesday announced its acquisition of two cement plans of JP Associates.
The brokerage has also trimmed its target price for JP Associates by 14 percent to Rs 27.50 saying the enterprise value per tonne of around USD 130 was lower than the estimate of USD 160 factored in the earlier target price.
Three takeaways from the deal, according to Deutsche:
(excerpts from the Deutsche note to clients)
* Firstly for the industry, this deal (unlike the Holcim Lafarge transaction – with regards to the Indian assets), may not attract as much attention of competition commission given the assets are in the Satna cluster – the one major cement cluster in India where UltraTech does not have presence.
* Secondly for UltraTech, like in the case of the previous transaction (Gujarat asset acquisition), this too has happened much below the replacement cost. More importantly, unlike the previous transaction where the cement EBITDA was less than US$5, these assets are amongst the most profitable cement units of JPA
* Lastly for JPA, while the continued efforts to reduce debt augurs well, the valuation realized on sale of assets below current replacement cost is not that encouraging.