Can acquisition of Jaypee Group’s cement assets help Dalmia Bharat expand pan-India footprint?

Dalmia Bharat Share Price: Dalmia Bharat shares dropped significantly on Tuesday, December 13, day after the company inked a pact to acquire cement assets of Jaypee Group's flagship company Jaiprakash Associates Limited and its associate firms for Rs 5,666 crore.

The stock opened at Rs 1,925 apiece on NSE, jumping 1 per cent from the previous close of Rs 1906.30. However, the stock surrendered the gains to trade in negative bias, crashing more than 5 per cent to hit the day's low of Rs 1806. At 11:35 AM, the counter quoted Rs 1851 on NSE and Rs 1855 on BSE.

Brokerages are mixed on Dalmia Bharat and revised targets post the deal.

CLSA and Morgan Stanley in their reports have maintained Outperform rating on the stock. CLSA has raised the target to Rs 2100 from Rs 1810. It said that the deal addresses geographical concentration risk for the company and expedites the journey toward target capacity.

Morgan Stanley said that the deal will help diversify its geographical footprint and is also a step towards management’s vision of making Dalmia a pan-India player.

Jefferies tagged a buy rating with a target of Rs 2060, saying the acquisition will enable the company to emerge as a pan-India player. Citi, on the other hand, maintained a Neutral rating with a price target of Rs 1650.

Earlier on Monday, Dalmia Bharat in a regulatory filing said that its wholly-owned subsidiary Dalmia Cement Bharat Limited (DCBL) has entered into a 'binding framework agreement for the acquisition of clinker, cement and power plants from Jaiprakash Associates Limited and its associate company'.

The deal includes a total cement capacity of 9.4 million tones (MnT) per annum, along with clinker capacity of 6.7 MnT and thermal power plants of 280MW at an enterprise value of Rs 5,666 crore, it added. These assets are situated in the states of Madhya Pradesh, Uttar Pradesh and Chhattisgarh. The acquisition will help Dalmia to expand its footprint into the central region.

As per the company,  the acquisition will also represent a significant step towards realisation of its vision to emerge as a pan-India cement company with a capacity of 75 MnT by FY27 and 110-130 MnT by FY31.

The transaction is subject to due diligence, requisite approvals from lenders/JV partner of Jaiprakash Associates Limited and regulatory authorities.

Dalmia Bharat Share Price History

YTD, Dalmia Bharat has yielded a negative return of 3 per cent. Putting into perspective, Dalmia Bharat stock which was available for Rs 1881.85 apiece on January 3, is now available at around Rs 1825. At current levels, the stock has a market cap of Rs 34.22 thousand crore.

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