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Mumbai: India’s top two cement makers, which together constitute about 40% of the installed capacity in the world’s second-biggest market for the building material, are competing to further consolidate their grip in the East by taking over Emami Group’s cement assets in a potential billion-dollar buyout.
Four binding offers for the 8-million tonne per annum business went in last weekend from Aditya Birla flagship UltraTech, Nuvoco Vistas (formerly
company, and Star Cement, the largest in the northeast, said multiple people aware of the offers. While UltraTech and Nuvoco are seen as the two most aggressive bidders, Star’s bid has surprised some in a freight-heavy industry that is organised regionally.
Interestingly, LafargeHolcim was forced to sell its plants in the East in 2016 to comply with
rules before consummating a global merger. That divestment threw up a surprising winner as Nirma beat bigger rivals JSW Cement and Ajay Piramal to take control of 11million tonnes of cement capacity, making the world’s largest soda ash maker a significant player in the building materials industry.
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. Emami declined to comment for the story. Mails sent to UltraTech, Nuvoco, Star, and Ambuja remained unanswered.
However, sources said the bids are rather circumspect. “Price and other negotiations are ongoing after the final offers went in over the weekend. There is no exclusivity signed with any party just yet,” said one of the contenders on condition of anonymity as the talks are in private domain. Emami had initially sought a valuation of Rs 8,500-9,000 crore for a fullfledged sale of its 8-mtpa cement assets, spread across eastern India, but chances are that the group may settle for a Rs 7,000-7,500-crore deal. The sale includes all the assets and mining leases on 300 million tonnes of limestone deposits that would last for 60 years. The company has four units in Chhattisgarh, Orissa, Bihar and West Bengal.
East is a fragmented market, with UltraTech, LafargeHolcim and Dalmia Bharat each having 17% share. Nirma has 10% of the market, while Shree has a 14% share. Taking over Emami would mean an additional 8% slice of the market. Even though Shree and Dalmia Bharat both looked at the prospect along with Heidelberg, they refrained from submitting a binding offer, sources mentioned above said.
Both Nuvoco and Star are expected to rope in a financial partner if shortlisted. The former has engaged with Aion, KKR, Piramal-Bain’s India Resurgence Fund, and Temasek to explore a potential partnership. 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 93 MT by end of March 31, 2020 from 86 MT in the previous year. In the next two fiscals, cement capacity in the eastern region is expected to grow to 110 MT from 86 MT in FY19.
Demand growth expectations for cement have been trimmed downward to consolidated 0-5% in FY20 (from 6-9% following 1Q), as volume recovery remained elusive in the second quarter. Companies are optimistic about growth recovery in 2HFY20 on government infrastructure projects (roads, irrigation, metro, etc.) and low-cost housing. “Managements expect cement demand revival in 2H across regions; the north is expected to remain buoyant in terms of cement demand, the west is expected to be driven by Maharashtra, demand in the east is expected to grow moderately (4-6%) and demand in central India is expected to revive in 2HFY20 as pent up demand materialises,” Roshan Paunikar, analyst with JM Financial, wrote in a report.
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