Stake sale of Madhya Pradesh unit drags India Cements lower; Motilal Oswal gives 'Sell' call​

Share price of India Cements opened 4 percent lower on October 11, a day after the company announced that it has entered into in a pact with JSW Cement to divest its entire stake in Springway Mining Pvt Ltd (SMPL) for nearly Rs 477 crore.

At 12:00 pm, the stock was quoting Rs 260 on the National Stock Exchange. The stock has rallied over 75 percent from its June low of Rs 150. For the year so far, it is up 32 percent.

The company informed stock exchanges that it has "entered into a Share Purchase Agreement on 10.10.2022 with JSW Cement Limited (buyer) and divested the entire shareholdings held by it in Springway Mining Private Limited (SMPL), for a total consideration of Rs 476.87 crore.”

Follow our live blog for all the market action

"Consequently, SMPL ceased to be the wholly owned subsidiary of our company," the regulatory filing added.

SMPL has a net worth of Rs 14.22 crore, the filing stated, adding that the company had a nil turnover in fiscal year 2021-22. The sale is expected to improve liquidity condition of India Cements. Dr Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital said, "The stake sale is good for the company and will help reduce its net debt. However, the pricing of the deal was a little bit disappointing to some investors."

In December 2018, India Cements announced entire stake buy of Springway for a consideration of Rs 182 crore. In end-June this year, the company had completed acquiring the entire paid-up equity and preference shares of Springway.

After the divestment of SMPL, which owns a limestone bearing land in Madhya Pradesh's Panna district, growth outlook for India Cements looks even more uncertain. Limestone is a key raw material to make cement and the acquisition will give JSW Cement a strong entry into the central Indian market, according to analysts.

“In Q4FY22 earnings concall, India Cements’ management mentioned that they are not envisaging any expansion plans, given the low capacity utilization and any such action will be taken up based on improved market conditions. Hence, the future growth plans of the company looks uncertain,” Motilal Oswal Financial Services said in a note.

India Cements has not added any capacity after the upgradation of its Chilamkur unit in Jun 2010 which resulted in a significant market share loss for the company over the years, analysts at Motilal Oswal added.

They have a 'Sell' rating on the stock with a target price of Rs 180 apiece.

Disclaimer: The views and investment tips of investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​