JP Associates sells stake in Bokaro cement unit; stock gains

MUMBAI: Shares of Jaiprakash Associates gained momentum in trade after the company signed an agreement to sell its 74 per cent stake in the Bokaro cement unit to Dalmia Cement.

The deal has been struck at a little over Rs 1,150 crore and the proceeds will help the Manoj Gaur-led company to pare its massive debt burden of Rs 60,000 on its books. It wants to slash debt by Rs 15,000 crore by March-end.

"The above stake sale is subject to the approval of SAILBSE 1.02 % and such other approvals, as may be necessary from lenders of Bokaro Jaypee Cement and concerned authorities,"

Jaiprakash Associates said. Besides the equity investment, Dalmia Cement will also take over around Rs250 crore of debt attached to Bokaro Jaypee Cement, an executive associated with the deal said.

“Although the deal is small relative to the `631 bn debt of JPA, it helps in right sizing the balance sheet, in doing away with less productive assets,” said Kotak Institutional Equities report.

According to the brokerage, the sale implies an enterprise value of Rs 12 billion (US$96/ton) considering the Rs 3 billion of debt outstanding as of March 2013. The Bokaro facility has an extant capacity of 2.1 mtpa, which contributed revenue of Rs 6.3 billion and PAT of Rs 1.4 billion in FY2013.

The facility was operating at 59 per cent utilization due to shortage of slag on account of lower steel production by the associated facility of SAIL.

“Our back-of-the-envelope calculation suggests the current deal may accrue up to Rs 4 per share to our fair value estimate. The current asset sale marks the third such transaction by JPA after it sold its cement assets in Gujarat to Ultratech for Rs 38 billion and its power assets under JPVL for Rs 100 billion,” the report said.

The brokerage has maintained ADD rating on the stock with a target price of Rs 44.

At 10:00 a.m.; the stock was at Rs 49.70, up 1.33 per cent, on the BSE. It touched a high of Rs 50 and a low of Rs 49.40 in trade today.