JP Associates on look-out for strategic investor, India

JP Associates on look-out for strategic investor, India
Published: 07 December 2011

Manoj Gaur, executive chairman of Jaiprakash Associates has said that the company is on the look-out for a strategic investor in the cement business. This comes following the company board decision to hive-off the Andhra Pradesh and Gujarat plants in an attempt to reduce debt on books of the parent company.

Speaking to
CNBC-TV18, he says that cement capacities other than ones in Gujarat and AP will remain with the parent company. “Jaiprakash Associates will retain majority control over the cement business and the strategic stake sale will be of 26-50% only,” he says.

Gaur indicates that the company is in talks with private equities and foreign cement companies for investment. “A move on the cement business can be expected by mid-2012,” he says.

JP Associates has registered nearly 30% CAGR over the past six-seven years. Gaur is confident of an improved balance sheet by end of 2012 on the back of reduced debt on books.

Below is the edited transcript of the interview.

Q: What’s the plan with the demerger of your plants in Gujarat and Andhra Pradesh, and will you extend it to unlocking value from the overall cement business eventually as well?

A: Over the past few months, we have been working on reducing the debt on the main company. Since the plants in western India have been commissioned in totality and producing well, and the plant in Andhra Pradesh is about to be commissioned, it was decided by the board of directors that we would hive-off the South West part of the business.

Along with South West, there are some other allied businesses which would go into the subsidiary company.

Eventually, we would look for having a partner in that company. On whether we are going to consider unlocking or thinking about hiving-off other parts of cement, well, the answer is absolutely no. We feel that as a board we have taken a right decision that cement capacity, as in South West, would remain an interior part for us.

Q: Are you looking to sell majority stake in this demerged division, and how have you valued this company, how much money are you looking to raise?

A: Strategic sale does not mean that majority would go to anybody. Strategic can vary from 26-50% in my opinion.

As far as valuation is concerned, I think these are invaluable plants, and they have great value and potential. Time only will tell how these things turn out to be. We have taken a right decision to move forward in this direction.

We are towing a line… there can be private equities or they can be people who want to come to India. So that is something only future will tell.

Nonetheless, we are pursuing this goal while concentrating on how we can ensure productivity and optimal utilization of resources.

Q: By the end of the next calendar year, with your new plan of action, do you think you will see your balance sheet in much better state than you are closing this year with?

A: I am more than confident. Generally, perception varies from time to time. We have been in growth since the time the company took birth; over past 40 years, the company has been growing, but in the past six-seven years, it has grown in a healthy way registering almost 30% growth on CAGR basis.

Because of whatever is happening in the economy around the world, Indian economy cannot remain untouched by its impact. At the same time, except education, every other business seems to be unaffected by what is happening in our economy.

So cement capacity creation has taken place, and capacity does not always match with demand concurrently. But we cannot undervalue this fact that we require cement and steel for growth for our infrastructure. I therefore remain very confident of the upturn in the cement market.

I would like to tell you that I am more than confident that debt reduction would be quite visible in the balance sheet much before December 2012. In fact, we plan to complete the hive-off in the next four to five months, and by then, we should also be able to finalize how we need to have a partner in the company. So by May-June, I think the reduction would be seen in the balance sheet in terms of debt.