MUMBAI: Ending months of negotiation, Irish building materials giant CRH has agreed to buy Sree Jayajothi Cements (SJJC) from the diversified Shriram Group for an enterprise valuation of around Rs 1400 crore, said multiple sources involved in the transaction. The final agreement between the two sides was signed this weekend and a formal announcement is expected within the next two days.
Since 2008, CRH has been operating in India through its equal joint venture My Home Industries where it acquired a 50% stake. Currently it has three manufacturing units inAndhra Pradesh that produces 3.2 million tonnes of cement per annum. It has also set up a 1.5 million tonne grinding capacity. This acquisition will help CRH further scale up its India operations, especially in Andhra Pradesh.
When contacted TP Shivaraman, MD&CEO of Shriram EPC refused to comment on the deal closure, saying he will issue a formal statement on Monday. Mails sent to CRH did not elicit a response till the time of going to press.
Set up in 2006, SJJC has a 2.3 million tonne/annum cement plant which includes a 1.9 million tonne clinker facility in Kurnool district. The listed engineering and construction arm of the $8 billion Shriram Group, Shriram EPC took a controlling stake in SJJC last February after the original promoter T.R. Kannan failed to repay Rs 563-crore dues to the engineering contractor which was a vendor to the company. The take-over by Shriram EPC was a fairly unusual event.
Shiram EPC had converted its dues into equity shares and purchased a 19% stake. Another group company acquired another 49% stake, taking their combined stake to 68%. The residual 32% remained with Kannan. Shriram had been scouting for strategic and financial partners since then.
The Shriram group owns India's largest truck financing company Shriram Transport Financeand also has business interests in real estate, financial services, IT services and retail. Tamil Nadu based Kannan's Jayajothi Group is primarily into textiles but over the years had branched out to transportation, education and power and energy management. Cement was a relatively new diversification. But with this transaction, both will cash out.
My Home-CRH is expected to pay Rs 600 crore equity for the deal, said the sources referred to above while the rest is debt. The valuation comes to $110/tonne valuation, in line with current industry trends. Boutique investment bank Mape was the advisor to Shriram Group in the deal, while Motilal Oswal advised CRH.
Post acquisition, the existing SJJC capacities are expected to be ramped up. With supply exceeding demand in South India, currently the plant only utilises 60% of the capacity. The plan is to build an integrated unit to produce different types of cement along with a captive power plant. Jayajothi is believed to have approvals for mining in areas with possible reserves of 80 million tonnes of limestone. Additional approvals for a further 180 million tonnes are also expected.
ET in its January 3 edition had reported that CRH and Holcim are in separate discussions with the Shriram Group to take over SJJC after the original dialogue with Portugal's Cimpor failed in the final stages of negotiations. In the few months, several players were approached, including PE buyout fund Blackstone, KKR and France's Vicat.
Global cement players are increasingly refocusing on emerging markets like India. While Holcim last month restructured its Indian operations and is waiting regulatory and shareholder approvals, Lafarge raised Rs 1400 crore from Baring Asia PE in a structured deal to enable the French giant to fund its Rs 6000 crore expansion programme.
CRH and My Home Industries have a presence across South India as well as eastern states of West Bengal, Orissa,Bihar, Jharkhand and Chhattisgarh and in the west in Maharashtra. Its aim has been to scale up to a 10 million tonne annual capacity in the country. Last year, CRH was also in discussion with the promoters of Jaypee Group to acquire 51% in the latter's 2 units in Gujarat for an EV of Rs 4200 crore. But the talks did not fructify.
GFX: THE TAKEOVER DRAMA
2006: TR Kannan sets up Sree Jayajothi Cements (SJJC) in AP
2011: ADAG eyes Jayajothi, talks fail after detailed diligence over valuation
Jan-Feb 2012: Kannan fails to pay his vendor Shriram EPC Rs 563 cr dues
March 2012: Shriram Group takes control of SJJC with 68% stake, Kannan left with 32%
March-May 2012: Shriram looks at partners to run plant, talks with Portugal's Cimpor fails
Jan 2013: CRH, Holcim competes with Blackstone to buyout SJJC
Aug 2013: CRH's India JV My Home Industries concludes deal for Rs 1400 cr EV