India: Orient Cement will increase debt with acquisition

India: Orient Cement will increase debt with acquisition
Published: 11 October 2016


The interest burden of Orient Cement is expected to increase following the acquisition of the cement assets of Jaiprakash Associates, valued at INR19.5bn (US$291.48m). The acquisition will, however, help the company's geographical diversification, reports the Economic Times.

Orient Cement acquired Jaiprakash Associates' 2.1Mta cement plant at Bhilai and 2Mta grinding unit at Nigri. The enterprise value for the Bhilai asset is US$98/t and the Nigri unit is US$37/t. The deal also includes the purchase of 1.1Mta of clinker at Babupur, Madhya Pradesh.

After the transaction is completed, Orient Cement's capacity will increase to 12.1Mta from 8Mta. Orient Cement has presence in the southern and western regions. Japyee Cement's acquisition will give it a ready market in the eastern and central regions. It will also provide limestone reserves and fully-operating plants. It will be able to tap demand in central and eastern India, where cement prices and capacity utilisation are firm. At present, the company has concentrated presence in Maharashtra, Karnataka and Telangana, where cement prices and utilisation levels are relatively range-bound.

However, the company's interest expense will increase. It will fund the deal with a combination of debt and equity and hopes to keep the debt-equity ratio of the acquisition at 1.5. This means, it will issue equity worth INR6910m and have a debt of INR10370m, taking the total debt-to-equity ratio to 1.34 after the acquisition from 1.3.