Blackstone, Temasek Holdings eye 15-20% stake in Wonder Cement
The US-based Blackstone Group and Singapore's Temasek Holdings are reportedly in separate discussions to acquire 15-20% in the company for Rs 1,000 crore in a deal that is expected to value Wonder Cement at $800-900 million (Rs 6,000-6,600 crore).
- Oct 31, 2018,
- Updated Oct 31, 2018 12:46 PM IST
RK Group's Wonder Cement, one of the largest cement makers in north-western India, is quite the belle of the ball currently with two top investors separately eyeing a stake in it.
The US-based Blackstone Group and Singapore's Temasek Holdings are reportedly in separate discussions to acquire 15-20% in the company for Rs 1,000 crore in a deal that is expected to value Wonder Cement at $800-900 million (Rs 6,000-6,600 crore).
Citing sources in the know, The Economic Times reported that the proposed fund infusion will be used to increase the capacity from 6.75 million tonnes per annum (mtpa) to 11 mtpa by FY19. Wonder Cement is already in the process of expanding capacity by setting up a 2 mtpa grinding unit in Maharashtra for Rs 450 crore. In addition, the company plans to set up an additional unit in Madhya Pradesh.
The source added that Wonder Cement would require Rs 2,500-3,000 crore to bankroll these expansion plans. Of this total, it hopes to raise Rs 1,000 crore from PE investors and the rest through internal accruals. Investment bank JP Morgan has been hired to run the process.
The development comes at a time demand for cement as well as its prices are predicted to move upwards, after trading were flat-to-marginally lower in September. Rising capacity utilisation will lend pricing power to the industry. This along with moderating cost inflation gives us comfort on margin outlook.
Historical analysis suggests that cement price hikes are higher than WPI (Wholesale Price Index) in periods of rising utilisation," Morgan Stanley analysts Ashish Jain and Mukund Sarawogi wrote in a research note on September 20.
The demand growth is pegged at 6-7% for FY19 and 7% for FY20, which will be bolstered by a pick-up in the housing - primarily affordable housing - and infrastructure segment, especially road and irrigation projects.
According to ICRA, increased budgetary allocation for the rural economy, agricultural and allied sectors, coupled with relatively better monsoons during 2018, is also expected to support demand.
"Pace of cost inflation will ease in the second half of the fiscal, which, coupled with rising utilisation, led price hike will drive solid earnings growth," the Morgan Stanley note added.
With the beaten down cement sector providing better risk reward, it's not surprising that private equity players have been quite active in the space. Baring Private Equity Asia, which invested $250 million in Lafarge's India unit in 2013, exited within 18 months with 22% internal rate of return.
Similarly, global major KKR sold its entire stake in Dalmia Bharat last year, earning 150% returns from its investment in 14 months.
Currently, markets like Rajasthan, western Madhya Pradesh and north Gujarat contribute about 80% of Wonder Cement's sales revenue.
Edited by Sushmita Choudhury Agarwal
RK Group's Wonder Cement, one of the largest cement makers in north-western India, is quite the belle of the ball currently with two top investors separately eyeing a stake in it.
The US-based Blackstone Group and Singapore's Temasek Holdings are reportedly in separate discussions to acquire 15-20% in the company for Rs 1,000 crore in a deal that is expected to value Wonder Cement at $800-900 million (Rs 6,000-6,600 crore).
Citing sources in the know, The Economic Times reported that the proposed fund infusion will be used to increase the capacity from 6.75 million tonnes per annum (mtpa) to 11 mtpa by FY19. Wonder Cement is already in the process of expanding capacity by setting up a 2 mtpa grinding unit in Maharashtra for Rs 450 crore. In addition, the company plans to set up an additional unit in Madhya Pradesh.
The source added that Wonder Cement would require Rs 2,500-3,000 crore to bankroll these expansion plans. Of this total, it hopes to raise Rs 1,000 crore from PE investors and the rest through internal accruals. Investment bank JP Morgan has been hired to run the process.
The development comes at a time demand for cement as well as its prices are predicted to move upwards, after trading were flat-to-marginally lower in September. Rising capacity utilisation will lend pricing power to the industry. This along with moderating cost inflation gives us comfort on margin outlook.
Historical analysis suggests that cement price hikes are higher than WPI (Wholesale Price Index) in periods of rising utilisation," Morgan Stanley analysts Ashish Jain and Mukund Sarawogi wrote in a research note on September 20.
The demand growth is pegged at 6-7% for FY19 and 7% for FY20, which will be bolstered by a pick-up in the housing - primarily affordable housing - and infrastructure segment, especially road and irrigation projects.
According to ICRA, increased budgetary allocation for the rural economy, agricultural and allied sectors, coupled with relatively better monsoons during 2018, is also expected to support demand.
"Pace of cost inflation will ease in the second half of the fiscal, which, coupled with rising utilisation, led price hike will drive solid earnings growth," the Morgan Stanley note added.
With the beaten down cement sector providing better risk reward, it's not surprising that private equity players have been quite active in the space. Baring Private Equity Asia, which invested $250 million in Lafarge's India unit in 2013, exited within 18 months with 22% internal rate of return.
Similarly, global major KKR sold its entire stake in Dalmia Bharat last year, earning 150% returns from its investment in 14 months.
Currently, markets like Rajasthan, western Madhya Pradesh and north Gujarat contribute about 80% of Wonder Cement's sales revenue.
Edited by Sushmita Choudhury Agarwal