Growth flat, standalone cement companies look for exit

CHENNAI: Two years of flat growth in south India has pushed standalone cement firms to the brink with many of them opting for the exit route. After news of Sree Jayajothi Cements looking for buyers, it is learnt that the promoter of Bhavya Cements is also scouting for investment/buyers.
South India is reeling under excess capacity and cement manufacturers are operating their plants at only 70-75% of the rated capacity.With growth languishing in lower single digits, standalone cement companies are unable to hold on.
The promoter of Bhavya Cements, V Ananda Prasad, has decided to exit from the cement business. “The process to find potential suitors is on. The promoter is expecting around Rs 900 crore or roughly $160 a tonne, which is slightly on the higher side,” sources said. Bhavya has mandated Ernst & Young to find buyers for the 1.4 million tonne per annum cement plant that it operates in Thangeda, near Dachepalli in Guntur district of Andhra Pradesh. The company has approvals to expand capacities from 1.4 million tonnes to 5 million tonnes. “The limestone reserves are very good. It is a very good asset, provided there is a slight scale down in valuation expectation,” sources said.
E Venkat Rao, director on the board of Bhavya Cements, dismissed talks of a sale. “We are not selling or looking for external funding. We already have investment interest from Wayzata Investment Partners,” Rao said, adding the company ended the previous fiscal with Rs 435 crore revenues and a net profit of Rs 30 crore. It is learnt that Wayzata has an option to convert its loans to the company into equity. “They have an option to get up to 25% stake in the company. That still remains an option,” sources said.
The original promoters of Sree Jayajothi Cements, Jayavilas Group of Rajapalayam, had to sell off their plant to Shriram EPC, unable to pay the EPC company dues for setting up the plant. Shriram EPC has a 70% stake in Sree Jayajothi Cements after it converted long-pending dues into equity earlier this year. Jayavilas Group holds the remaining shares.
Jayavilas-founded Jayajothi Cements had set up a 3.2-million tonne per annum at Kurnool-Kadapa district of Andhra Pradesh in 2009. The debt-laden company struggled to keep operations going until Shriram picked controlling interest. Shriram group has pressed the exit button for this asset, kick-starting talks with PE funds Blackstone and Kohlberg Kravis Roberts (KKR).