India: Sagar Cements is in advanced talks to buy Jaypee Group's Andhra Cements. JSW Cement is another potential contender. The enterprise value of the deal is expected to be around US$162 – 169m, a steep discount of about 30% in comparison with recent cement deals.

Andhra Cements has two plants in Andhra Pradesh with a combined capacity of 2.6Mt/yr. It also has a 25MW captive power plant under construction. It had a debt of US$118m at the end of its 2015 fiscal year. If the deal transpires at US$162m, it will translate into an enterprise value of US$64/t of cement capacity. This is lower than the average valuations of US$100/t of the recent deals in the sector.

"We would like to clarify that, though the company does hold discussions internally now and then in an informal way on expanding its operations through organic and inorganic routes, no particular entity has yet been identified for a possible acquisition," said an Andhra Cements spokesperson.

For Sagar Cements, the deal presents several long-term synergies. The acquisition will enhance its current capacity of 3.8Mt/yr by 2.6Mt/yr. Secondly, Sagar Cements will add the capacity at a time when the creation of two new states, Telangana and Andhra Pradesh, is expected to generate an incremental cement demand of 30Mt in the region in the next five years.