JMC Projects to merge with parent Kalpataru Power; Stocks react mixed

21 Feb 2022 , 11:33 AM

The board of Kalpataru Power Transmission (KPTL) and JMC Projects (India) has approved the scheme of amalgamation which inter alia provides for the merger of JMC with KPTL. The merger brings together two leading organizations with unique sets of capabilities and complementary businesses in the current attractive EPC markets. The merger will accelerate growth and enhance value creation for all stakeholders.

According to the Scheme, JMC’s shareholders (other than KPTL) will be allotted one share of KPTL against every four shares held by them in JMC.

Mofatraj Munot, Chairman, KPTL said “Over the past decade, at both KPTL and JMC, we have relentlessly focused to develop best in class project execution capabilities, robust systems and processes, strong leadership teams, strengthened balance sheet, diversified business lines and extended our geographical reach. By bringing together these two companies through merger, we are creating a strong platform to accelerate future growth, improve our competitive position and bring significant operational efficiencies.”

Shailendra Kumar Tripathi, MD and CEO, JMC expressed that the “Merger of JMC with KPTL is an important step in our growth journey. KPTL brings several unique advantages and the merger will help in the realization of the combined benefits of the two companies. It will be an exciting journey for the group and has immense potential to create attractive value for our customers, employees and other stakeholders.”

Manish Mohnot, Managing Director & CEO, KPTL said, “The merger of KPTL and JMC is a significant milestone for all of us, as both the entities come together to drive the next phase of growth and value creation. The combined businesses present a significant opportunity to increase scale and relevance both in India and the international EPC market. KPTL has a strong domestic and overseas presence with a strong balance sheet and financial flexibility, while in high-growth civil business verticals, JMC provides a strong platform that is highly complementary to KPTL’s strengths. KPTL and JMC will leverage each other’s respective capabilities to create value for both our shareholders through a successful combination of our franchises.”

“KPTL will continue with its efforts to divest non-core investments in order to strengthen its balance sheet. We will drive a vision of being a USD 3 billion revenue organisation by 2025, with a strong balance sheet and stable margins,” KPTL MD and CEO added.

With the appointed date of 1st April 2022, the merger process is expected to be completed in Q4FY23. The merger is subject to approvals from the Gujarat bench of Hon’ble National Company Law Tribunal, statutory authorities, stock exchanges, shareholders, creditors and such other authorities, as may be required.

For the deal, independent valuers were Ernst & Young (EY) for KPTL and Drushti R Desai (Partner at Bansi S. Mehta & Co.) for JMC. While fairness opinion was given by JM Financial to KPTL and Anand Rathi Advisors to JMC. Khaitan & Co is the legal advisor for KPTL and JMC.

Strategic Rationale: Complementing Strengths, Enabling Future Growth

1. Scale and Strategic Diversification:

The combined entity (post-merger) will possess a sectorally diversified portfolio of engineering and heavy construction capabilities, thereby creating one of the largest EPC companies in India with an estimated order book visibility (including L1) over Rs. 37,000 Crore. This entity will be present across all high growth sectors, with significant capital allocation across Government spending in the year(s) to come.

The merger will also enhance KPTL’s business portfolio and pre-qualifications by JMC’s expertise in civil works business. At the same time, JMC will be able to leverage KPTL’s expertise, global business access and financial flexibility, to pursue value-creating opportunities by expanding the current business and bidding for large-size infrastructure projects. The merger will drive immense operational synergies and cross learnings, thereby improving competitiveness to increase scale and
relevance both in India and international EPC markets.

2. Enhanced Global Market Presence:

The combined entity will have footprints in over 65 countries across 5 continents. With JMC’s proven civil works business capabilities, KPTL’s strong global footprint with the ability to deliver projects on a global scale will result in significant opportunities for growth in existing and new geographies. KPTL’s local presence in Sweden and Brazil will also help to diversify into non-T&D businesses in these geographies.

3. Best-in-class Management and People Expertise:

The combined entity will benefit from collective management expertise and one of the best-in-class workforces with deep expertise and strong complementary cultures. The collective management expertise, would in turn enhance the overall corporate capability, provide focused strategic leadership and the ability to operate a large business structure. As a single organization, the collective workforce will benefit from expanded opportunities for career development and growth.

4. Financial Benefits:

Post-merger, the combined entity will comprise several high-growth businesses with leadership positions in T&D, B&F, Water, Railways, Oil & Gas Pipeline and Urban Infra, which provides balanced earnings visibility and a resilient portfolio. The combined entity will be able to drive a lot of operational synergies and scale effects in areas like procurement, supply chain and technology. Additionally, synergies will be achieved from the increased scale of the new organization, the sharing of best practices and cost reductions.

Also, the combined entity can maintain a strong balance sheet and credit profile, which has the potential to optimise liquidity and reduce the cost of financing, leading to better profitability.

At around 11.28 AM, JMC was trading at Rs91.90 per piece down by 0.9% on BSE, on the contrary, KPTL gained by 2.3% and was trading at Rs398.45 per piece.