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IB League 2019: HSBC STG Bangalore
IB League 2019: HSBC STG Bangalore
IB League 2019
PUBLIC
Section 1
Overview
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IB League 2019 - STG Campus Case Study
Overview
Background
In April 2019, the Rajan Raheja Group (RRG), a diversified conglomerate which holds controlling stake in Prism
Johnson Limited (PRJ or Company), decided to divest PRJ for a portfolio optimization.
The Board of PRJ had appointed investment bank “STG Advisers” to undertake a strategic review of the
business and advise on a potential sale of the company. Your 3 member team, acting as STG investment
bankers, prepared a presentation to the Board of Directors, incorporating the below:
A sell side positioning story for the Company
Preliminary valuation analysis to advise on a potential fair value of the Company
Subsequently and based on the briefing pack, the Board of PRJ put up the company on sale to interested
buyers in early May. On 15th May, the Company received a formal takeover offer from Baring Private Equity
Asia. On 25th May, the Company received another offer from ACC Limited. Both all-cash offers were
comparable, however the Board thought that there could still be potential upside to the offers.
A few other industry players also expressed interest in acquiring the Company in the early stages of the sale
process, but no formal offers were received from them as of 31st May. This has been attributed to the recent
round of consolidation that has happened in the industry.
Given the above developments, the Company has asked “STG Advisers” to provide its assessment to the Board
on the below:
Which of the 2 bidders - one strategic and the other a financial sponsor - would be a more suitable
candidate for decisive final negotiations and a subsequent sale of PRJ?
As a sellside adviser, you could provide further analysis on transaction structuring alternatives (for example,
RRG holding a minority stake rather than a full exit) in the context of the preferred buyer. All suggested
scenarios should be backed by sound reasoning.
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Section 2
Additional Information
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IB League 2019 - STG Campus Case Study
In addition to operational and financial information from websites, please go through the below content having
some additional information in the context of the sell side scenario and the bids offered:
PRJ is based in Central India, with units in Madhya Pradesh with a capacity of 7 MTPA of cement. RMC
operates 92 ready mixed concrete plants across India. RMC has a backward integration in aggregates
business and operates 5 quarries. HRJ has 13 manufacturing plants and is one of the few entities in India
offering end-to-end solutions of tiles, sanitaryware, bath fittings, engineered marble & quartz.
The total insider stake in PRJ is c.70%. The promoter group (RRG) expects to sell its stake at an attractive
premium, at least c.30% to the volume weighted average share price (VWAP) of INR82.02 in Q1 CY2019.
The promoters are keen to have an exit that entails minimum management overhaul or employee
rationalization in the entity post acquisition (partly due to certain contractual constraints). RRG has also
adopted a strategic vision to have a periodic review on capital efficiency, and accordingly facilitate
divestitures and acquisitions of businesses as appropriate.
Back in May 2013, Baring had invested EUR200m (INR14.1bn then) for a 14% stake in Lafarge India
through fresh issue of securities. The deal was one of the rare instances where a multi-national firm
divested a minority stake in its India operations to a PE firm to fund its growth. Lafarge, one of the world’s
largest cement manufacturers, was at that time looking to cut its EUR 12.2bn debt, caused by acquiring the
Middle Eastern cement maker Orascom in 2007. Lafarge also assured a 15% IRR and buyback of the
shares of its Indian arm from Baring within 5 years.
2 years later, in June 2015, Baring exited the investment, with Lafarge buying out Baring’s stake in Lafarge
India for EUR270m (INR19.5bn). For Baring, this was the biggest bet yet in India at that time and it sealed a
neat profit from the investment. In dollar terms it generated an 18% return (not counting dividends, if any)
over two years. This serves as a benchmark return for Baring’s future investments in the Indian building
materials industry.
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IB League 2019 - STG Campus Case Study
ACC Limited
Founded in 1936, ACC is one of the largest players in the Indian cement industry. One of the few cement
companies to have a pan India presence, ACC`s main businesses comprise manufacturing and marketing
of cement, ready-mixed concrete, bulk cement and refractory products. It is controlled by global building
materials giant LafargeHolcim, that holds a 54.5% stake (through direct and indirect investments).
Recent M&A activity involves sale of 12.13% stake in Shiva Cement to JSW Cement in March 2017. In June
2018, the press reported that Jaiprakash Associates, an Indian industrial conglomerate, was in advanced
talks with ACC, to sell its residual cement business for INR 52bn. However, ACC dismissed this news as
market speculation. There were also talks of a potential merger of ACC and Ambuja Cements in early 2018.
This was subsequently put on hold, as reported by media.
In December 2018, ACC announced expansion plans of 6 MTPA, with investments in Madhya Pradesh,
Uttar Pradesh and Jharkhand. However, this is expected to be operational in Q3 2021. ACC has also
focused on various cost control measures. As per brokers, fixed-cost side rationalization is playing out well,
thanks to tight controls on SG&A spends and employee reductions done over the last 2 years. One of the
key focus areas of the management has been leverage, which is a key performance indicator (KPI) for
ACC. Currently, ACC has a net cash balance sheet and the company targets to maintain net debt / EBITDA
< 1x on a consistent basis. Brokers expect company to benefit from better demand momentum, price hikes,
new capex announcement providing a visibility on growth beyond 2021 and a net cash balance sheet.
For annual interest rate calculations, consider a base rate of 6% p.a. plus margin as indicated in the table
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IB League 2019 - STG Campus Case Study
Financials estimates from brokers
Broker A
Broker B
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IB League 2019 - STG Campus Case Study
Financials estimates from brokers (cont’d)
Broker C
Other income - -
Broker D
Other income - -
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Section 3
Precedent transactions and trading
comparables for relative valuation
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Selected precedent transactions
Asian cement sector
EV /
% EV Capacity EV/
Date Target Acquirer stake (USDm) (USD/t) EBITDA
9-May-19 Holcim Philippines San Miguel Corp 86% 2,148 215 16.2x
17-Jul-17 Hyundai Cement Co. Ltd Hanil Cement Co. Ltd. 85% 600 75 10.9x
Vietnam Construction
7-Mar-17 Siam Cement Group 100% 419 135 n/a
Materials (JSC)
11-Jan-17 Shiva Cement Limited JSW Cement 32% 47 80 33.7x
25-Jul-16 Holcim Lanka Siam City Cement 99% 385 167 11.2x
17-Aug-15 Lafarge India assets Birla Corporation 100% 714 139 n/a
Lafarge Republic CRH & Aboitiz Equity
8-Jun-15 99% 1,154 177 9.2x
(Lafarge assets in Philippines) Ventures
29-Mar-15 Siam City Cement Jardine Cycle 25% 2,323 160 11.0x
4-May-09 Lafarge Aslan and subsidiaries Oyak Cement Group 97% 159 47 10.3x
2-Apr-08 Set Group (Ciments Francais) Sibirsky Cement 100% 535 152 12.7x
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Notes: FX (USD1 = INR70)
Sources: Company filings, HSBC analysis
Trading comparables
Asian cement sector
Market Enterprise EV /
Cap Value Capacity EV/Sales1 EV/EBITDA1 EV/EBIT1 P/E1
Company name USDm USDm (USD / t) FY'20E FY'21E FY'20E FY'21E FY'20E FY'21E FY'20E FY'21E
Indian Peers
ACC 4,325 3,894 117 1.8x 1.7x 13.5x 11.2x 19.0x 14.5x 20.6x 22.1x
Ambuja Cements 6,256 6,101 206 1.6x 1.5x 11.0x 9.1x 15.9x 12.6x 21.2x 24.3x
Birla Corporation 647 1,062 69 1.0x 1.0x 6.6x 5.9x 9.0x 8.0x 14.4x 10.8x
Century Textiles &
1,544 1,625 111 2.0x 2.9x 9.8x 14.0x 18.2x 17.1x 19.8x 26.4x
Industries
Heidelbergcement India 648 656 122 2.1x 2.0x 8.9x 7.7x 9.8x 8.3x 19.5x 16.9x
India Cements 441 869 56 1.0x 0.9x 7.7x 6.9x 11.3x 10.0x 50.1x 19.2x
J.K. Cement 1,042 1,296 173 1.6x 1.4x 9.0x 7.8x 11.7x 10.4x 14.6x 12.9x
JK Lakshmi Cement 615 806 97 1.5x 1.4x 11.6x 10.0x 18.6x 15.4x 56.7x 24.5x
Orient Cement 332 504 63 1.2x 1.1x 8.2x 7.0x 12.2x 10.1x 16.6x 11.3x
Ramco Cements 2,589 2,810 171 3.3x 2.8x 14.9x 12.5x 20.1x 16.3x 36.7x 27.8x
Sagar Cements 182 241 103 1.2x 1.0x 8.5x 6.4x 14.6x 9.1x 78.0x 18.2x
Sanghi Industries 223 307 75 1.7x 1.3x 9.9x 7.0x 14.4x 10.0x 15.0x 13.2x
Shree Cement 10,180 10,519 278 5.3x 4.6x 20.4x 17.2x 33.7x 26.1x 40.2x 30.8x
UltraTech Cement 18,239 21,182 220 3.3x 2.9x 16.9x 14.4x 22.6x 18.7x 35.6x 26.9x
Greater China Peers
Anhui Conch Cement 30,529 26,650 75 12.7x 13.1x 36.8x 38.0x 41.4x 42.3x 8.1x 8.1x
China Resources
6,066 6,379 77 11.5x 11.5x 34.1x 34.1x 40.7x 40.9x 5.9x 6.1x
Cement
Guangdong Tapai
1,932 1,539 140 15.9x 14.1x 41.0x 36.8x 48.2x 41.2x 7.6x 6.8x
Group
Asia Cement (China) 1,839 2,036 54 10.8x 11.2x 29.8x 24.3x 31.6x 28.8x 5.7x 4.9x
West China Cement 717 1,021 35 10.5x 11.3x 28.8x 23.8x 32.5x 34.8x 4.8x 4.5x
Taiwan Cement 6,930 9,031 111 5.0x 4.9x 17.8x 16.6x 22.0x 20.7x 9.8x 9.8x
Other Asian Peers
Taiheiyo Cement 3,709 6,236 938 0.5x 0.5x 3.6x 3.5x 6.0x 5.7x 9.1x 8.5x
Ssangyong Cement
2,407 2,964 258 0.1x 0.1x 0.5x 0.5x 0.8x 0.8x 18.5x 15.2x
Industrial
Sumitomo Osaka
1,541 1,993 159 0.5x 0.5x 3.9x 3.7x 8.2x 7.5x 13.4x 12.9x
Cement
Eagle Cement 1,520 1,392 196 5.6x 4.6x 14.3x 11.3x 16.1x 12.7x 16.5x 13.7x
Lafarge Malaysia 754 974 69 31.5x 29.0x (604.1x) 831.1x (224.7x) (543.0x) (11.3x) (25.5x)
Cahya Mata Sarawak 772 859 312 34.6x 32.7x NA NA 212.3x 187.1x 12.3x 12.3x
Cemex Holdings
256 584 102 1.7x 1.5x 13.5x 10.4x 25.2x 17.1x (28.5x) 14.2x
Philippines
PT Indocement
4,691 4,219 169 0.0x 0.0x 0.1x 0.1x 0.2x 0.1x 52.9x 36.5x
Tunggal Prakarsa
PT Semen Indonesia
4,417 6,382 120 0.0x 0.0x 0.1x 0.1x 0.1x 0.1x 21.8x 23.2x
(Persero)
Siam Cement 17,226 23,048 79 3.4x 3.4x 23.3x 21.1x 36.8x 32.4x 12.3x 12.0x
Siam City Cement 2,009 2,905 223 4.5x 4.3x 24.1x 22.8x 39.0x 35.3x 20.4x 17.7x
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Notes: Market data as on 21st May 2019
1. All financials calendarised to March
Sources: Factset, Broker Consensus, Company filings
Disclaimer
This Investment Banking Case Study Competition (“The IB League 2019”) is open for students
of 2020 batch only. The information in the case study is provided for illustrative purposes only
and doesn’t reflect HSBC or its affiliates’ views on the case or the company mentioned here in.
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The contest is run by STG Bangalore and the PPIs, if any, are for STG Bangalore.
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