Prasad Baji of Edelweiss Securities said there is no official announcement on the deal and there is likely to be a number of twists and turns in the deal. According to him, Ultratech will be keen about the acquisition and since Jaypee is looking at exiting its cement business, the deal maybe struck soon.
Moreover, if a brand like Ultratech takes over Jaypee's cement unit, it is likely to add value to the business and bring about better cement pricing, feels Baji.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What did you make of the deal and what kind of impact do you think it has immediately for Jaypee Associates?
A: Firstly, we have to get an official announcement on the deal. There have been a lot of twists and turns in the stake sale that Jaypee has been doing. Of course the latest news is about Ultratech buying it.
Clearly, I think what Ultratech is looking at is that considering the challenges in Greenfield projects and any kind of expansion, it will save them three years of setting up and that is the key interest. It is also a 5 million tonne kind of capacity. It will add around 10 percent to their overall capacity.
I think these are the things that are attracting Ultratech to a deal and Jaypee of course has stated an intention to exit the cement business to the extent of this piece at least and deleverage.
Q: There has been also a lot of give and take and to and fro on the valuation at which this deal might be done. We hear a range from USD 160 to USD 180 depending on which party it is talking to, what looks like a realistic valuation at which such a deal could be concluded?
A: If you look at the precedence of M&A transactions in the cement industry, they have varied between USD 160 and has gone as high as USD 200. Certainly, this is within that range. I think definitely Jaypee will push for USD 180-185 in my view. It is too early to conclude whether Ultratech will agree to that but, I think what Ultratech will look at is the savings in time.
Also what Ultratech brings to the table post the acquisition is better pricing of cement due to its recognition as a more premium brand in the market. It will potentially help Ultratech give a higher value to this business.
More to come.
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