JSW Cement considers pre-IPO placement of up to ₹400 crore

New Delhi: JSW Cement is considering raising ₹400 crore ahead of going public, according to the company’s initial public offering (IPO) filing on Friday.

The company will raise this funding through a fresh issue in a pre-IPO placement offer, said the cement venture of the $23-billion JSW Group in its draft red herring prospectus (DRHP). However, it said, the pre-IPO offer does not guarantee that it will proceed with the public listing.

The Sajjan Jindal-led company filed preliminary papers with the capital markets regulator Sebi on Friday to raise ₹4,000 crore via an IPO. Mint first reported on the company’s IPO plan on 31 August 2023.

The IPO will be a combination of a fresh issuance of equity shares and an offer for sale (OFS) by existing investors, both worth ₹2,000 crore each. The amount raised in the pre-IPO placement-capped at 20% of the fresh issue-will be reduced from the overall fresh issue, the company said.

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Fresh shares will be issued through a preferential offer or any other method permitted, the DRHP said.

The maker of green cement--manufactured from industrial byproducts-plans to spend ₹800 crore from the net proceeds of the fresh issue to establish a new integrated cement unit in Nagaur, Rajasthan, and ₹720 crore to pare down debt. The remaining funds from will be used for general corporate purposes.

As of March 2024, the company’s debt stood at ₹5,835.76 crore under various financial arrangements.

The book running lead managers for the IPO are JM Financials, Axis Capital, Citigroup Global Markets India, DAM Capital Advisors, Goldman Sachs (India), Jefferies India, Kotak Mahindra Capital, and SBI Capital Markets.

This is the group’s second major listing after a 13-year hiatus and will be the first major public issue in the cement industry since Nuvoco Vistas Corporation’s ₹5,000-crore IPO in August 2021.

JSW Cement operates seven plants across the nation and is expected to increase its installed grinding capacity from 20.60 million metric tonnes per annum (mmtpa) to 40.85mmtpa and its installed clinker capacity from 6.44mmtpa to 13.04mmtpa. Additionally, it intends to increase total capacity to 60mmtpa.

Industry outlook

The Indian cement industry is highly fragmented and competitive due to the presence of a few large players who have been consolidating via both organic and inorganic routes.

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Excessive competition in the industry has put pressure on product prices, which declined 5% year-on-year in the first quarter of FY25. Analysts, based on the current pricing trend, anticipate an impact of ₹200-250 per tonne on realizations in Q2FY25.

Domestic cement demand has grown at a 6% compound annual growth rate (CAGR) over FY19 to FY24. But election-related factors, extreme weather conditions, and a shortage of labour impacted consumption in the first quarter ended June.

“Demand remained muted in April and May 2024 before recovering in June 2024, albeit at a slower pace,” Axis Securities said in its Q1 results report for the sector. “We anticipate that demand will strengthen post-monsoon and that non-trade demand will rise due to government project allocations.”

The government also continues to infuse capital into the country’s infrastructure. According to revised estimates, budgetary capital expenditure support increased by 17% to ₹11.11 trillion in FY25.

Over the next five years, FY25 to 2029, Crisil MI&A Research expects cement demand to clock a healthy 6.5-7.5% CAGR compared with 6% in the previous five years. It will be driven by a raft of infrastructure investments and healthy momentum from the housing segment, the JSW DRHP said.