Reliance Cementation, the cement arm of the Anil Ambani Group, is redrawing its business plans independent of its power sector growth.
It is focusing on inorganic opportunities and according to three independent sources; it has zoomed in on the Andhra Pradesh market for a possible acquisition. The company in focus is Sree Jayajothi Cements with whom Reliance Cementation is currently negotiating for a possible purchase.
If the deal is successful, it would be the first such acquisition for the ADA Group.
Reliance Cementation is currently a wholly-owned subsidiary of Reliance Infrastructure.
A company spokesperson, however, said: "As a matter of policy, we do not comment on market speculation."
Jayajothi Cements, is part of the diversified Jayajothi Group of Tamil Nadu with revenues in excess of Rs. 300 crore (Rs. 3 billion).
Even though textile is its main business, currently the group's activities spread across cement, transportation, education and even power and energy management.
Despite repeated attempts, Jayajothi Cements Managing Director, T R Kannan, who is also the promoter of the group, was unavailable for comments.
Emails to the company were not answered.
Jayajothi's cement operations in Andhra Pradesh are a relatively newer business.
Set up in 2006, the company claims to have a 3.2 million tonne per annum (mtpa) greenfield cement plant and a 2 million tonne per annum clinker facility in the Kurnool district.
Sources said ADA Group is currently doing a legal diligence of the asset.
SJJC's limestone reserves, sufficient for its capacity and future expansions, are also in the same district.
It has three limestone mines, and are in various stages of getting ministerial and environmental clearances.
Independent analysts, however, said, SJJC's grinding facility is partially ready and the cement unit is in the process of getting commissioned.
An analyst tracking the company said: "Jayajothi has limestone assets only in Andhra Pradesh and even though it has an installed grinding capacity of 3.2 mtpa, it is producing less than 2 mtpa as of now."
Valuations in the cement space have been a sticky subject in the recent past.
And it may also turn out to be a deal breaker in this case. Even though some are expecting the deal to close at $95 per tonne-100 per tonne, others say, Jayajothi's final price could go as high as $120/tonne-125/tonne.
"Jayajothi's management has been seeking higher compensation for the sell-off on the grounds that it produces 6,000 tonnes per day (tpd)
of clinker.
"That is the only bone of contention as of now," added a source following the development.
Keeping SJJC's debt in mind, most industry watchers say a deal at an enterprise value of Rs 1,500 crore (Rs. 150 billion) seems likely.
Even though the Andhra market currently suffers from a glut, the well-connected SJJC gives a potential entry to Reliance Cements in this strategic market.
This will give SJJC acquirer a toehold in the southern and western markets of Andhra Pradesh, Goa, Maharashtra, Karnataka, Tamil Nadu and Kerala where it currently markets its products under its own brand name.
Andhra Pradesh used to be the highest cement consuming state. In southern India, Andhra alone used to corner 70 per cent of the total consumption.
But of late, it has witnessed a negative growth and excess capacity.
In fact, across the southern states, cement facilities are running at only 61 per cent of their total capacity, said sector analysts.
Industry watchers said Reliance Cementation itself is undergoing significant change in its business plans.
Its growth, till recently linked to the RPower's expansions, has been muted so far.
Since 2008, ADA Group has been targeting to emerge as the one of the biggest cement players in the country with the largest single location cement facility.
It had initially planned to set up four cement plants of 5 million tonnes capacity each at a total investment of Rs. 10,000 crore (Rs. 100 billion).
All the units were to come up in Madhya Pradesh so that they could have leveraged the strengths of the group's Sasan ultra mega power project.
ADA has also roped in the most high profile executive in the space, former MD of Ambuja Cements Anil Singhvi, to lead the group's cement foray.
But last year, after Singhvi left the company, he was succeeded by former CEO of ACC Sumit Banerjee.
Under Banerjee, the group's cement foray has been delinked with power.
And now the focus is on setting up two 5 million tonne greenfield units in Maharashtra and Madhya Pradesh.
A third plant of similar capacity is also expected in south, although its location could not be independently verified.
The company, soon to be rechristened as Reliance Cements, is hopeful of introducing its branded cement by the end of 2012.
Reliance Cementation, the cement arm of the Anil Ambani Group, is redrawing its business plans independent of its power sector growth.