JSW Cement has begun evaluating the acquisition of the promoter stake in Orient Cement Ltd (OCL) from CK Birla, according to sources familiar with the development. This move comes amidst a consolidation wave in the sector, with the Aditya Birla and Adani groups actively acquiring assets across the country.
The entry of JSW Cement introduces a third contender for OCL’s 8.5 million tons per annum (MTPA) capacity, joining the Adani and Aditya Birla groups, both of whom have been in discussions with CK Birla since late last year when JP Morgan initiated the sale process.
Jindal’s interest in OCL adds a new dynamic to the competition with Gautam Adani and Kumar Mangalam Birla, who have been in talks with CK Birla at various points since late last year. In 2022, all three companies vied for the $6.5 billion acquisition of Holcim’s India assets, with Adani ultimately winning, becoming the second-largest player in the country.
The promoter stake in Orient Cement, held by the Birla family and private investment vehicles, is 37.9%. An acquisition would trigger an open offer for an additional 26% stake from minority shareholders. OCL’s shares have appreciated 56% in the past three months in anticipation of a trade, as CK Birla’s second generation appears uninterested in running the business. At current market prices, a transaction for the 63.9% stake could be valued at approximately Rs 4546.54 crore, with OCL’s market value standing at Rs 7115.09 crore.
With Adani and Ultratech negotiations delayed by valuation issues and environmental clearances for key limestone mines, Jindal saw an opportunity to join the fray. Adani recently acquired Penna Cement in June, while Ultratech bought into India Cements, ramping up its stake to majority control.
“JSW has shown interest in acquiring Heidelberg’s India assets, Penna, and India Cement. Although Heidelberg preferred an equal joint venture, and Adani leaped ahead in Penna, JSW has had Orient Cement on its radar since the sale process began. Efforts have intensified following the India Cements transaction,” said a source familiar with the negotiations.
JSW Cement plans to list its cement business next year, and acquiring OCL could facilitate a reverse merger and listing.
Mails, calls, and messages to CK Birla, chairman of the eponymous group, and Deepak Khetrapal, MD and CEO of OCL, went unanswered. A JSW spokesperson declined to comment.
There is no guarantee that these discussions will result in a transaction, sources warned. “The market has become so competitive that it is now a seller’s market,” said a CEO of a rival cement company. “Birla will sell to the highest bidder, extracting maximum value.” OCL’s limestone mine, with an 8 MTPA capacity, could help new suitors double capacity to 16 MTPA.
In 2018, Orient Cement announced intentions to double its capacity with a Rs 2000 crore investment based on a limestone supply contract from the Telangana State Mineral Development Corporation (TSMDC). The company’s FY23 annual report mentioned reopening its Rajasthan mines and plans to enter Northern Indian markets with over 3 MTPA greenfield capacity, enhancing its geographical reach and valuation compared to regional competitors.
Sector analysts believe Orient Cement promoters seek valuations higher than India Cements due to superior assets and balance sheets. Penna’s 12 MTPA sale valued at $88/tonne and India Cements’ (14.5 MTPA) deal valued at $93-$112/tonne support this.
Orient Cement trades at $100 EV per ton based on current capacity, with a nearly debt-free status and a 0.07 debt-to-equity ratio in FY24. The company achieved 81% utilization in the fourth quarter, with 24% sequential sales volume growth, focusing on premium cement, which accounted for 22% of total volume in FY24, up from 14% the previous year.
“OCL’s asking valuation should be more than $110-$112 EV per ton, translating to a market cap of around Rs 8100 crore,” said a source familiar with the talks.
JSW Cement currently has a 16.6 MTPA capacity with units in Maharashtra, Andhra Pradesh, and Karnataka, aiming to reach 26 MTPA by FY26 and 50 MTPA by 2030 through greenfield and brownfield expansions.
OCL’s manufacturing spans Devpur (Telangana), Jalgaon (Maharashtra), and Chittpur (Karnataka), supplying to 11 states across Central, Western, and Southern India. Significant sales come from Vidarbha and Marathwada regions in Maharashtra and Telangana. Western India contributes 67% to total sales, followed by South India at 24%, with the rest from Chhattisgarh and Madhya Pradesh.
A successful acquisition would increase capacity in complementary markets and improve market share in existing ones. Orient Cement has a Rs 1000 crore capital expenditure plan for the current fiscal year, focusing on expansion at its Telangana and Karnataka plants.