Godawari Power & Ispat Shares in Focus: Acquiring 51% Stake in Jammu Pigments

On November 20, 2024, Godawari Power & Ispat Limited (GPIL), a leading player in the iron & steel industry, through an exchange filing announced a strategic move to acquire a 51% stake in Jammu Pigments Limited (JPL). This acquisition is valued at approximately ₹500 Crores (post-money). GPIL will also make a financial infusion of ₹175 Crores into JPL for the repayment of unsecured debt and for growth capital. Additionally, GPIL will acquire shares worth ₹79.52 Crores from JPL’s existing promoters in 2 tranches.

Financial and Borrowing Details

As of October 31, 2024, JPL has bank borrowings totalling ₹339 Crore, which include:

• Fund-based loans: ₹302 Crore
• Non-fund-based limits: ₹37 Crore

These borrowings will remain in place even after the management control shifts to GPIL following the acquisition.

Acquisition Process and Tranches

The acquisition will occur in two tranches:

• Tranche 1 – 49% Stake Acquisition: GPIL will invest ₹175 Crore in JPL, issuing Compulsory Convertible Preference Shares (CCPS). These CCPS will convert into equity shares after 6 months from the date of allotment. GPIL will also purchase shares worth ₹79.52 Crore from JPL’s promoters.
• Tranche 2 – 2% Stake Acquisition: GPIL will acquire an additional 2% stake (valued at approximately ₹10 Crore).

The transaction is subject to the satisfaction of conditions precedent and is expected to be completed by March 31, 2024.

Post-Transaction Management and Governance

Upon the completion of the acquisition, JPL will become a subsidiary of GPIL. The management of JPL will be a joint venture between GPIL and the existing promoters. Shri Ramesh Agrawal, the current Managing Director of JPL, will continue to lead the company for 5 years. GPIL will have the right to nominate Directors to JPL’s Board, including one Executive Director. Upon completion of the full transaction, GPIL will hold a majority of the Board seats at JPL.

Strategic Rationale for the Acquisition

This acquisition presents a significant strategic opportunity for GPIL to expand into the non-ferrous metals recycling sector, a highly capital-intensive industry. The deal offers a cost-efficient and low-capex growth opportunity, complementing GPIL’s existing business model and further diversifying its operations.

Cancellation of Transaction with RG Pigments Pvt Ltd (RGPL)

The GPIL Board, in its meeting on November 6, 2024, had initially approved the acquisition of a stake in RG Pigments Pvt Ltd (RGPL). However, due to the ongoing acquisition of a 51% stake in JPL, where RGPL will remain a subsidiary of JPL, the proposed transaction with RGPL has been cancelled.

About Jammu Pigments Limited (JPL)

Jammu Pigments Limited specializes in the recycling of non-ferrous metals, with a focus on recycling lead acid batteries and other secondary lead waste. The company, along with its subsidiaries, processes complex industrial waste to recover valuable metals like Lead, Tin, Zinc, Copper, and Cadmium. JPL’s advanced technical capabilities ensure cost-effective and efficient extraction of trace metals from waste materials.

JPL operates its manufacturing units in Kathua district, Jammu & Kashmir, and Kota, Rajasthan. The subsidiaries of JPL are fully owned by the company, either directly or through other subsidiaries.

Mr B. L. Agrawal, Managing Director of GPIL, Stated, “GPIL’s strategic acquisition of a majority stake in JPL aligns with its ESG objectives, advancing its commitment to portfolio diversification and environmental sustainability. This move not only strengthens GPIL’s asset base but also mitigates risk and unlocks new market opportunities, underscoring the company’s dedication to responsible growth. We are confident this acquisition will drive sustained growth and deliver significant value to all stakeholders.

On November 21, 2024, Godawari Power & Ispat Limited (GPIL) shares opened at ₹188.95 and touched the day high of ₹191.15 at 09:30 AM.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.