Emami to sell cement business to Nirma group arm for Rs. 5,500 crore
The transaction is expected to be completed in the next 3-4 months, Emami said in a statement on Thursday.
The sale of the cement business is part of Emami group's plan to become debt-free. Last year, the group's founders sold 20% in their flagship household goods company, Emami Ltd, for?2,830 crore as part of the plan.
Emami Cement Ltd operates an integrated cement plant in Risdah, Chhattisgarh; and grinding units in Bihar, West Bengal and Odisha, with a total installed capacity of 8.3 million tonnes per annum (mtpa). It has mining leases in Chhattisgarh, Rajasthan and Andhra Pradesh.
"This transaction is an important step in our group's stated objective of becoming debt-free and with this transaction, we will substantially achieve this objective," said Manish Goenka, director of Emami Group. "We are very proud of Emami Cement's achievements in a short span of time and we strongly believe that in Nuvoco, we have found the right acquirer who will be able to develop the business further in the interest of all the stakeholders."
Law firm Khaitan & Co, led by partners Haigreve Khaitan, Mehul Shah and Ashraya Rao advised Nirma group on the transaction, while Emami was advised by Shardul Amarchand Mangaldas.
This is Nirma's second cement acquisition in east India. In 2016, Nirma acquired Lafarge India's cement assets at an enterprise value of $1.4 billion. Lafarge India operated three cement plants and two grinding stations with a total capacity of around 11mtpa.
The Emami cement acquisition will bring Nuvoco's total cement capacity in eastern, northern and western India to 23.5mtpa, including an ongoing capacity expansion project at its Jojobera plant and over 60 ready-mix plants. The combined operations will span three facilities in Chhattisgarh, two each in Rajasthan and West Bengal and one each in Bihar, Jharkhand, Odisha and Haryana.
The Indian cement industry has seen a trend towards consolidation as debt-laden corporates sold their lucrative cement businesses to repay lenders.
In 2016, Reliance Infrastructure Ltd sold its cement assets to Birla Corp. Ltd for ?4,800 crore as part of the Anil Ambani-led company's efforts to pare debt, while UltraTech Cement Ltd acquired bankrupt cement maker Binani Cement in 2018 for around ?7,600 crore.
UltraTech had also acquired 21.2mtpa cement capacity from Jaiprakash Associates, part of debt-laden Jaypee Group.
While most of the mergers and acquisitions (M&As) in the cement sector in recent years have been driven by debt-related issues, other factors are also feeding into the appetite for such deals, said Mumbai-based investment banker Ajay Garg, managing director of Equirus Capital.
"Changes in various regulations such as mining regulations have also made greenfield development a little challenging and so there is a strong appetite for acquisitions and, hence, we see a lot of buyers when any asset comes up for sale in the market," said Garg. "With the market leader UltraTech Cement now having a capacity of above 100mtpa, it has created a scale pressure on other cement makers and thus they are more open to M&A to gain scale."