Jaiprakash going into insolvency was a surprise which we did not anticipate: Puneet Dalmia

Cement-maker Dalmia Bharat is in talks with the Interim Resolution Professional (IRP) to continue tolling arrangements — supply and manufacturing contracts — that it has with Jaiprakash Associates. These arragements help it cater to Central and East India markets. However, there now exists some “uncertainty” surrounding the deal with Jaiprakash Associates going into insolvency, as indicated by the cement-maker’s top-brass.

Back in December 2022, Dalmia Bharat signed a binding framework agreement to acquire clinker, cement, and power plants from Jaiprakash Associates. In 2023, Dalmia Bharat executed definitive agreements to acquire the cement assets. But the deal could not be concluded.

According to Puneet Dalmia, Managing Director, Dalmia Bharat, Jaiprakash going into insolvency was a “surprise” which it had not anticipated.

On June 3, the NCLT Allahabad accepted accepted Jaiprakash Associates Ltd (JAL) for corporate insolvency. This followed ICICI Bank’s application for debt resolution dating back to September 2018.

“One is that we were fairly confident that the Jaypee transaction will get consummated this year (fiscal).....But the fact that they got pushed into insolvency was a huge surprise for us. So there has been some delay (towards Dalmia Bharat upping its capacity) and there is some uncertainty....which we did not anticipate,” he said during a post result analyst call.

‘Plan B’

Provision for a loss of ₹113 crore arising out of claims (receivables) from Jaiprakash Associates has been made as a sectional item in Q1FY25.

However, Dalmia added that there is “always a Plan B” and the company has continued to stick to its guideline of 110-130 million tonnes of cement capacity by 2031; and be a “pan-India player”. Acquisition of Jaypee’s cement assets would have given it around 10 mtpa capacity.

Its cement manufacturing capacity stands at 46.6 mtpa as on Q1FY25-end. This includes a tolling arrangement of 0.4 mtpa from Jaypee’s facilities.

In manufacturing parlance, tolling arrangement refers to a system where one company provides raw materials (or semi-finished goods) to a third-party, who will then provide the rest of the services (manufacturing).

“While we had given an interim guidance of 75 mtpa by FY27, but given that Jaiprakash Assicates has entered into insolvency process, we believe that we can get to this milestone by FY28.....and despite the developments get 1.5x of industry growth,” he said.

Both organic and inorganic expansion processes will be explored.

Price weakness

Incidentally, the cement-maker continues to witness price weakness in Q1FY25. And according to Dalmia it is unlikely that there will be any immediate correction with Q2 being a traditionally weak quarter because of monsoon.

June exit prices were 2-3 per cent lower same quarter last fiscal. “Prices will remain soft due to monsoons and in Q3 we expect there will be some improvement,” he added.