Whyit MakesSense­forCos to Ac­quire Bi­nani’s As­sets

Strate­gic plant lo­ca­tions of be­lea­guered ce­ment man­u­fac­turer make it a lu­cra­tive ac­qui­si­tion bet: An­a­lysts

The Economic Times - - Smart -

ET In­tel­li­gence Group: Af­ter the Na­tional Com­pany Law Tri­bunal (NCLT) ad­mit­ted in­sol­vency pe­ti­tion against Bi­nani Ce­ment fol­low­ing its fail­ure to re­pay ₹ 97 crore to Bank of Bar­oda, an­a­lysts track­ing the ce­ment sec­tor are of the view that key play­ers may find it lu­cra­tive to buy the com­pany’s as­sets.

Ac­cord­ing to the an­a­lysts, there are some com­pelling rea­sons for es­tab­lished ce­ment play­ers to be in­ter­ested buy­ing in Bi­nani Ce­ments’ as­sets. For in­stance, it would be prof­itable for a key ce­ment player to ac­quire op­er­a­tional units of Bi­nani than set up new plants. It has 6.25 MT ca­pac­ity as far as op­er­a­tions in In­dia are con­cerned.

Ad­di­tion­ally, due to chal­lenges in land ac­qui­si­tion, the time taken to set up a green­field ce­ment plant has gone up by two times to six years. Be­sides, the cost of set­ting up a ce­ment plant has be­come pro­hib­i­tively ex­pen­sive.

The an­a­lysts also point out that for a player to cover cap­i­tal costs re­quired to set up a one-mil­lion­tonnes plant, ce­ment prices should trade close to ₹ 350 per 50 kg bag or above it, as against the ex­ist­ing av­er­age of any­thing be­tween ₹ 306 and ₹ 324.

An­a­lysts also say that the lo­ca­tions of Bi­nani’s plants are quite strate­gic. For ex­am­ple, Bi­nani has c e me n t p l a n t s in south­ern Ra­jasthan, which pro­vides it ac­cess to the Gu­jarat mar­ket as well. De­mand in the north­ern and western re­gion is sta­ble and ca­pac­ity util­i­sa­tion is close to 80%. Ac­cord­ing to an an­a­lyst with a lead­ing bro­ker­age said, “Bi­nani is a big ce­ment brand. The com­pany has in­vested in its ad­ver­tis­ing and mar­ket­ing quite well by rop­ing ac­tor Amitabh Bachchan as the brand am­bas­sador. It has de­cent brand pres­ence out­side the re­gions in which it op­er­ates. It has fully op­er­a­tional clinker plant in South Ra­jasthan which is strate­gi­cally lo­cated and is close to Gu­jarat also. So, it makes sense for a large-sized player to ac­quire its as­sets.”

An­a­lysts also point out that since the com­pany’s as­sets are op­er­a­tional for a long time, they would fetch lower val­u­a­tion than what re­cently Ul­trat­ech Ce­ment paid for Jaypee’s ce­ment plants. An an­a­lyst, who wish to be un­named, said: “Jaypee’s ce­ment plants com­manded an En­ter­prise Value (EV) of $108 per tonne. In case of Bi­nani Ce­ments, the en­ter­prise value val­u­a­tion could be less than $100 per tonne.”

An­a­lysts be­lieve that among the large-and mid-sized play­ers, the ac­qui­si­tion will make sense for Am­buja Ce­ments, Adani Ce­ment and Dalmia Bharat.

1534.6 349.3 4366.7* 3842.5* 6.25MT 11.25 MT

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