Emami Agrees To Sell Cement Unit To Nirma
A pile of cement lies on builders slab outside a house at a Persimmon Plc residential property construction site in Weston-Super-Mare, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Emami Agrees To Sell Cement Unit To Nirma

Emami Group has agreed to sell its cement business to a subsidiary of Nirma Group as its promoters look to pare debt.

The group entered into a binding agreement with Nuvoco Vistas Corporation Ltd., a Nirma Group entity, to sell 100 percent equity stake in Emami Cement Ltd. at an enterprise value of Rs 5,500 crore, according to an exchange filing. The transaction, subject to regulatory approvals, is expected to be completed in the next three to four months.

“This is an important step in our group’s stated objective of becoming debt-free and with this transaction we will substantially achieve this objective,” Manish Goenka, director at Emami Group, said in a statement.

RS Agarwal and RS Goenka, promoters of Emami Group, have been looking to cut debt. According to a PTI report, it stood at Rs 2,600 crore as of August 2019 and the promoters aimed to become debt-free by May this year.

This is a positive development and significantly reduces the concerns on promoter level debt, according to Investec Securities. The deal will reduce the company’s debt and bring down pledged shareholding to 32 percent compared with 72 percent before the transaction, it said.

This is the second big acquisition by Nirma Cement, after it acquired LafargeHolcim’s India assets in July 2016. This deal will help it build a leadership position in East India and take its total capacity to over 20 million tonnes per annum. Emami Cement operates one integrated cement facility and three grinding units with a total capacity of around 8.3 MTPA.

The deal will lead to a consolidation in the eastern markets and the combined entity will compete with Dalmia Cement, UltraTech Cement Ltd. and Shree Cement Ltd., among others.

Valuation

Emami Cement has 5.12 MTPA clinker-based and 3.18 MTPA non-clinker capacity. Going by the industry standard valuation of Rs 200 crore for one MTPA capacity, the non-clinker capacity is worth Rs 636 crore.

What that means is Nirma is paying an enterprise value of Rs 4,864 crore for 5.12 MTPA clinker-based capacity to Emami Cement. That’s Rs 950 or $133 per tonne, in line with UltraTech Cement Ltd.’s acquisition of Binani Cement Ltd. at $132 per tonne.

Also read: Nirma in Talks With Apollo, Bain for India’s Emami Cement Bid

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