Shares of JP Associates rose as much as 2 per cent on Tuesday after the infra major said it will sell 74 per cent stake in Bokaro Cement to Dalmia Cement (Bharat) for Rs. 690 crore. Bokaro Jaypee Cement is a joint venture between JP Associates and state-run SAIL.
JP Associates is likely to use the proceeds from the sale to cut its massive debt. Analysts say the company's debt might come down by Rs 800 crore on a consolidated basis (Rs 690 crore from stake sale plus Rs 110 crore debt transferred from parent company to Dalmia Cement).
Macquarie says JPA has sold another high quality asset. The brokerage has a target of Rs 30 on JPA shares. Bank of America Merill Lynch, however, said JPA has exceeded the asset sale guidance given in FY 2014. It has a buy rating on JPA.
JP Associates has been on an asset-selling spree to de-leverage its balance sheet. Including subsidiaries, Jaiprakash Associates had total debts of Rs 55,000 crore to Rs 56,000 crore in September.
The company had planned to cut its debt by Rs. 15,000 crore through sales of assets including cement and power plants during the current fiscal year through March.
Earlier this month, the company said it will sell two of its hydroelectric power plants, owned by its subsidiary Jaiprakash Power Ventures, to a consortium led by Abu Dhabi National Energy Co (TAQA). Jaypee Group, the country's third largest cement maker, had last year sold its 4.8 mtpa capacity cement plant to Aditya Birla Group's Ultratech.
JPA's total debt is likely to come down by Rs 13,500 crore after these deals.
JPA shares traded 0.5 per cent lower at Rs 48.75 on the BSE as of 11.50 a.m.
Background:
The stake sale in Bokaro Jaypee Cement will take place at Rs 69.74 per share against acquisition cost of Rs. 18.57 per share. The plant has a capacity of 2.1 metric tonne and the total Enterprise Value (EV) realized is Rs 1,150 crore. Analysts say, at $90 EV per tonne, the valuation for Bokaro Cement is far above the typical average cost of $60 to $65.
Bokaro Cement's valuations have been on the higher side because the company has a 30-year clinker supply arrangement with JAL and 30-year slag supply arrangement with SAIL, analysts say.
Dalmia Cement said that its total installed cement capacity (including subsidiaries and associates) will reach 20 MTPA post this deal. The acquisition would be funded through a mix of debt and internal accruals, the management said.
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