Andhra Cements Ltd., which has surged more than 50 percent in the last 10 trading sessions, could be an acquisition target, according to IDBI Capital.
The loss-making Jaypee group company has high debt on its book and has never paid any dividend since listing. The group has been on an asset sale spree to bring down its debt to management levels in recent years.
Financial Snapshot
Andhra Cements' revenue has been stable, but weak operational performance has led the company to report losses for the last 17 quarters.
The total debt of the company is Rs 1,124 crore, which is nearly three times its market capitalisation.
The Jaypee group owns 69 percent stake in the company but has pledged 75 percent of their holding. Public shareholders include prominent names like HDFC and Fidelity Investment, which own close to 11 percent stake.
Andhra Cements is also more expensive compared with peers. The company trades at an enterprise value to earnings before interest, tax and depreciation and amortisation of 33 times.
Andhra Cements has two cement plants in Andhra Pradesh with a combined capacity of 2.6 million tonnes, which could be a good acquisition target for any major cement player to either enter or expand its presence in the South Indian market.
The company is a special situation play with high debt and mounting losses, Rohit Natarajan, cement analyst, IDBI Capital told BloombergQuint on the phone.
At current valuations, the stock may not look tempting. Yet there exists a possibility that the prospective buyer could pay higher than Rs 5,000 per tonne for the company as the limestone reserves of 80 million tonne could fetch higher value.Rohit Natarajan, Cement Analyst, IDBI Capital
Jaiprakash Associates Ltd., flagship company of the promoter group, sold cement assets to UltraTech Cement Ltd. for Rs 16,189 crore to pare debt.
Jaypee group is yet to respond to BloombergQuint's email query on the matter.
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