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Dalmia Bharat acquires JP Cement. What's next for the cement industry?

Dalmia Bharat acquires JP Cement. What's next for the cement industry?

Published on 27 December 2022 .Views 12 .Comments 0
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Dalmia Bharat is a leading Indian conglomerate company that operates in various industries, including cement, sugar, and power. The company was founded in the 1930s and has a strong presence in the Indian market. It is known for its commitment to sustainable development and has received recognition for its environmental and social responsibility initiatives. Dalmia Bharat has entered into a deal with Jaiprakash Associates Limited to acquire its assets for Rs. 5,666 crores. In this article, we will discuss why this acquisition is important and how can Dalmia Bharat become 3rd largest cement player in the country.

Acquisition:

  • Dalmia Bharat has entered into a deal with Jaiprakash Associates Limited to acquire its assets for Rs. 5,666 crores.
  • The assets include cement plants with a capacity of 9.4 MTPA (Million Tonnes Per Annum) along with a Clinker capacity of 6.7MnT and Thermal Power plants of 280MW capacity.
  • These assets are situated in the states of Madhya Pradesh, Uttar Pradesh & Chhattisgarh.

Why is this acquisition important:

  • Dalmia Bharat has an existing cement-producing capacity of 37 MTPA.
  • With this acquisition, the company will get exposure to the Central India region, which it did not yet explore as it had focused only on South and East India until now.
A key characteristic of the Central India region:

  • Utilization is a key metric for the cement industry. Utilization is arrived at by dividing the quantity of cement produced by the total available capacity.
  • As per the FY22 data, the utilization levels in Central India were at 79%, only second to North India.
  • With the utilization levels, we can infer that the demand for cement in Central India is quite good in respect of the available capacity.
How can Dalmia Bharat become the third-largest cement player in India?

  • After Ultratech and Adani Cement, Shree Cement ranks as India's third-largest player with a total capacity of 47.4 MTPA.
  • In a conversation with Business Standard, Mr H M Bangur (Chairman of Shree Cement), said that the company was adding 9 MTPA of cement capacity in the next 15 months, taking its total installed capacity to 56.4 MTPA.
  • As per the previously announced expansion plans of Dalmia Bharat, it aimed to achieve a capacity of 49 MTPA by the end of FY24.
  • Dalmia Bharat has also mentioned in its filings that it expects the JP deal to be completed within one year, i.e by Dec 2023.
  • Accordingly, the company’s total capacity would ramp up to 58.4 MTPA by the end of FY24 (49.0 + 9.4 = 58.4).
  • However, as mentioned earlier, Shree Cement will organically achieve a capacity of 56.4 MTPA by the end of FY24.
  • So, if things turn out as planned, Dalmia Bharat could seize the spot of the 3rd largest cement manufacturer in India.
  • However, we should not rule out the possibility that Shree Cement would expand inorganically. Although Shree Cement believes more in organic growth, the company was still evaluating the assets of JP. However, as the geographical location of these assets was not a good fit for Shree Cement’s overall portfolio, it dropped its plan of acquiring these assets.
  • This means, that Shree Cement is also open for brownfield expansion opportunities.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or mutual funds.

Originally Published On:https://blog.investyadnya.in/dalmia-bharat-acquires-jp-cement-whats-next-for-the-cement-industry/

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