A clutch of top strategic suitors have submitted non-binding bids for Emami Cement, which has been put up for sale by the Emami Group, sources in the know told Moneycontrol. Moneycontrol was the first to report the Kolkata-headquartered group’s move to sell its cement assets to reduce debt at the group level.
“The deadline for submission of non-binding bids ended recently and Ambuja Cements, Germany’s HeidelbergCement, UltraTech Cement, Dalmia Cement, Shree Cement and the Nirma Group are amongst those who have expressed interest at this stage. The bidders for the next stage will be shortlisted soon,” according to sources with knowledge of the matter.
“Emami Group is expecting an enterprise value of around Rs 6,000 crores for its cement business and is keen on an outright sale to reduce its debt burden. It’s a good quality asset present in strategic geographic locations, so strong interest will be there. The earlier plans of an IPO have been put on hold,” another source told Moneycontrol. Investment bank Arpwood is running the sale mandate.
Moneycontrol could not independently verify if any other suitor has offered a non-binding bid.
Emami Cement: A closer look
Emami Cement currently operates three manufacturing facilities at Risda in Madhya Pradesh, Panagrah in West Bengal and Bhabua in Bihar, with a total capacity of 5.6 million tonnes (mtpa). It is in the process of setting up a cement grinding plant at Kalinganagr, Odisha. The firm also has mining assets in Guntur in Andhra Pradesh and near Jaipur in Rajasthan. According to its draft red herring prospectus, the group has a distribution network of more than 2,200 dealers and over 5,000 retailers in 160 districts with 110 warehouse-cum-sale depots at various locations.
Say hello to the bidders!
Geographical consolidation and access to new markets are the two main factors driving interest amongst the multiple bidders. Market leader UltraTech Cement which has a consolidated capacity of more than 100 mtpa has locked horns with Dalmia Cement in the past in a controversial bidding war over Binani Cement under the insolvency and bankruptcy code which was mired in litigation.
Eventually, UltraTech Cement emerged victorious and acquired Binani Cement’s plants totalling 6.25mtpa in Rajasthan, inclusive of an integrated cement unit and a split grinding unit at a value of Rs 8,024 crores. Ambuja Cements is a part of the global conglomerate LafargeHolcim and had explored a merger earlier with group company ACC Cement which was put on hold in Feb 2018 citing “current constraints.” Rival bidder Nirma group, mainly in the detergent business, had stunned India Inc in July 2016 by edging out other high-profile bidders to acquire Lafarge’s India cement assets totalling 11 mtpa in capacity.
HeidelbergCement India Ltd is a subsidiary of Germany’s HeidelbergCement group and is present mainly in Central and Southern India. Kolkata headquartered Shree Cement is a leading cement player, especially in the Northern market where it rubs shoulders with Ultratech Cement.
The Emami Group is a diversified conglomerate engaged in the business of personal and health care products, paper, hospitals, edible oils, bio- diesel, cement, real estate, retail chains, power and art. In August, its group promoter debt stood at Rs 2,600 crores and a company official said the group would be debt free in the next nine months by exploring various options, including asset monetization. Earlier, the promoters had sold their 20 percent stake in its flagship company Emami Ltd to raise Rs 2,830 crore in two tranches and used the fund to reduce the debt burden. This had led to a decrease of promoter’s holding in Emami Ltd to about 52 percent.
The sectoral outlook
According to a CRISIL report released in September 2019, cement demand growth is expected to witness a mid-cycle slowdown to 5-5.5 percent on-year this fiscal, down sharply from 12 percent in fiscal 2019. Growth would be lower compared with even fiscal 2018, when it had printed 9 percent. Prices are expected to soften further in months ahead as an additional 14-15 MT of capacities commission in the second half and ramp-up of acquired capacities continues.
Despite this, for fiscal 2020 overall, CRISIL Research expects prices to be up 6-7 percent on-year primarily led by a robust Q1. For the second half, release of funds for key infrastructure projects and transmission of rate cuts would be the key monitorables guiding demand recovery and pricing sustenance.
A Dalmia Cement spokesperson said, “We would not be able to offer a comment on this matter,” while an Ambuja Cements spokesperson said,” We do not comment on market speculations.” MoneyControl is awaiting a response to email queries sent to Emami Group, UltraTech Cement, Nirma Group and HeidelbergCement Group and has sent reminders.
This article will be updated as soon as we hear from them.