Nuvoco emerges front-runner to buy Emami Cement business for up to Rs 6,000 cr

MUMBAI: Nuvoco Vistas, the Nirma Group’s cement division, has emerged as the frontrunner to acquire the Emami Group’s nine million tonne per annum cement business for Rs 5,500-6,000 crore enterprise value to consolidate its position in the east. The Nuvoco bid is likely to trump competing offers from top cement makers such as UltraTech, Star Cement and Ambuja, said people in the know.

This is the second time Nuvoco (formerly Nirma Cement) is set to create an upset beating bigger players. In July 2016, the Nirma Group acquired Lafarge Holcim’s India assets for $1.4 billion (Rs 9,000 crore). The group that now has a capacity of 11 million tonnes is trying to consolidate its position in the industry that is 40% dominated by the biggest two players--UltraTech Cement and Ambuja.

Nirma is among the world's largest soda ash players.

The binding bids were submitted on January 10. Nuvoco is expected to rope in a financial partner and has engaged with Aion, KKR, the Bain-Piramal India Resurgence Fund and Temasek to explore a potential partnership.

An announcement is due in the next seven days

Emami and Nuvoco didn’t respond to queries.

The sale includes all the assets and mining leases on 300 million tonnes of limestone deposits that will last for 60 years. The company has four units in Chhattisgarh, Orissa, Bihar and West Bengal.

As per a December 9, 2019, rating release by Crisil, Nuvoco is a leading cement player in eastern India, with a market share of about 11%. The company has its own captive limestone mines, clinker capacity and is in the process of setting up captive power plants (CPP) and waste heat recovery systems (WHRS). Most of these are expected to be commissioned by fiscal 2020. The established market position is supported by strong brands such as Duraguard, Concreto and Infracem and extensive network of over 5,000 dealers. “Also in fiscal 2020, Nirma plans to merge its cement undertaking with NVCL which shall increase the overall capacity to about 14 mtpa,” it said.

For the financial year ended March 2019, the company earned a revenue of Rs 6,513 crore against Rs 6,046 in 2018. The company’s profit after tax stood at Rs 126 crore in 2019 against Rs 145 crore in 2018, the Crisil report showed. The release sees the high net debt to ebitda ratio of around two times as a weakness and expects the company won’t further strain its financials with a higher debt to fund capex.

The company is looking to bulk up its cement portfolio before listing the business in the coming years.

Emami Group last year decided to monetise its cement assets for around Rs 7,000 crore to become debt-free at the group level by the end of this financial year. The cement company had a total debt of Rs 2,246.76 crore as of March 31, 2018, consisting of Rs 2,093.86 crore as secured term loan from banks and financial institutions and Rs 152.90 crore in working capital borrowings.

The formal sale process was managed by Arpwood and had drawn interest from players as diverse as Heidelberg, Shree Cement as well.

Emami had initially sought a valuation of Rs 8,500-9,000 crore for a full-fledged sale of the cement business but moderated it's expectations, sources mentioned above add.

East is a fragmented market, with UltraTech, Lafarge-Holcim and Dalmia Bharat each having 17% share. Along with Shree (14%), Nuvoco (11%) are the other large players. Taking over Emami would mean an additional 8% slice of the market.

As per ETIG data, the Indian market is expected to grow to 538 MT by the end of the current financial year, from 474 MT as on March 31, 2019. In the eastern region alone, the capacity is expected to be around 93MT by end of March 31, 2020 from 86MT in the previous year. In the next two fiscals, cement capacity in the eastern region is expected to grow to 110 MT from 86MT in FY19, as per various company announcements.

As per Maximizemarketresearch.com, an online research portal, India is the second largest producer of cement in the world. Increased construction and infrastructural activities are the major drivers of cement market. Initiatives such as the development of 98 smart cities are expected to provide a major opportunity for the market. Increase in expenditure further impels growth to India cement market. Cement demand to grow by 8 % owing to governments focus on infrastructure and housing. “52.84 % of people are now living in urban areas and this figure is increasing year by year. By 2030 India will lead to the urban population. Residential sector grabs 60 % share of the market. Increasing urbanization drives the residential segment market,” the report said.