Orient Cement Scraps Deal To Buy Jaypee Group’s Assets

Shares of Orient Cement Ltd. rose to their highest since February after the company terminated a pact with Jaypee Group to acquire its Nigrie grinding unit and Bhilai Jaypee Cements Ltd. in Madhya Pradesh.

According to agreed terms, either party was allowed to terminate the deal if it is not closed within 12 months, Orient Cement said in an exchange filing. “Since the closing has not been achieved within the said period, the share purchase agreement has been terminated.”

In May 2017, Jaypee Group had agreed to sell its assets for Rs 1,946 crore to CK Birla Group-promoted Orient Cement. Bhilai Jaypee Cements has an installed capacity of 2.2 million tonnes per annum. Jaiprakash Associates Ltd. own a 74 percent stake in the company, while Steel Authority of India Ltd. holds the remaining 26 percent.

The acquisition would have enhanced Orient Cement’s manufacturing capacity to 12.2 MTPA, helping it to expand into the central and eastern region of the country. Brokerages, however, had expressed concerns over the deal.

“We remained concerned about the company’s intent to acquire the cement assets of JP Associates, which will lead to an equity dilution and a higher debt-to-equity ratio in our view,” Emkay Research said in its May 3 note.

A day later, Anand Rathi said the acquisition may add to Orient Cement’s debt burden. “On completing the acquisition of JP Associates’ cement assets, Orient’s debt is expected to increase to Rs 1,500-2,000 crore. This will put pressure on its balance sheet and continue to drag down profits.”

Nine of the 16 analysts tracked by Bloomberg have a ‘Buy’ rating on the stock, indicating an upside potential of 13.5 percent. Five analysts suggest a ‘Hold’, while two have a ‘Sell’ rating.

Shares of Orient Cement rose as much as 12.35 percent to Rs 136 apiece in early trade on BSE Ltd. The stock has risen over 15 percent in the last six trading sessions.