On February 7, 2020 Emami Group, a Kolkata based diversified conglomerate, announced the sale of its cement business to Nuvoco Vista Group, which is a part of the Nirma Group. The group has decided to divest 100 per cent equity stake in Emami Group for an enterprise value of Rs. 5,500 crores. The Cement Company has a debt within the margin of Rs. 2000-2,200 crores and loans against shares worth thousands of crores. The move has been undertaken by Emami Group with the intention of becoming debt free. This is not the first instance of such a sale occurring in the India cement industry. Debt ridden corporates have sold their cement businesses in the past to repay lenders. Reliance Infrastructure Ltd sold its cement assets to Birla Corp in 2016 while UltraTech had acquired the cement business of Jaypee Group. Emami Cement Ltd. runs an integrated cement plant and three grinding units with a capacity of 8.3 million tonnes per annum (mtpa). Manish Goenka, Director, Emami Group, responded about the agreement, “the transaction was an important step in the group’s stated objective of becoming debt-free”.
Aditya Agarwal, the director, Emami Group, said with this deal, “the promoters' pledged shares would come down”. After adjusting the Emami Cement sell to Nirma Group, the promoter-level debt approximately is Rs. 600 crores. The Group did try to trim (off) the debt by various ways and last year, the promoters had sold off 10 per cent of stake in Emami for Rs. 1,230 crores to bring down the promoter debt-rate. Then the debt was Rs. 3,300 crores which was brought down to Rs. 2000 crores. Emami Cement can establish a stable equity in the market due to its criterion of operation and high-quality of products, which helped in getting value good and the director added, "We strongly believe that Nuvoco and the Nirma group will continue from here and strengthen the business further”.
After the fulfilment of the covenant, Nirma Cement would mature into a leading cement producer of the country. This will make cumulative cement capacity in eastern, northern and western India to 23.5 mtpa, which includes the ongoing capacity continuation project in its Jojobera plant and over 60 ready-mix plants. The transaction is subject to customary approvals, including from the Competition Commission, and is expected to be completed in 3-4 months.
Author: Asif Iqbal