Whyit MakesSenseforCos to Acquire Binani’s Assets
Strategic plant locations of beleaguered cement manufacturer make it a lucrative acquisition bet: Analysts
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