The Emami group has exited the cement business by selling the venture to Nirma at an enterprise value of Rs 5,500 crore, with the primary aim to cut debt.
The deal, which may take about six months to conclude subject to clearance from the Competition Commission of India, will enable the promoters of Emami Ltd to bring down the debt taken against a pledge of shares to about Rs 600 crore.
The Radhe Shyam Agarwal and Radhe Shyam Goenka family owns a 52.74 per cent stake in listed FMCG major Emami Ltd. Stock exchange filings show 70.21 per cent of the promoters’ holding is pledged.
Aditya Agarwal, director of the Emami group, said the deal would leave around Rs 2,500 crore cash with the group after accounting for various adjustments and Rs 2,000 crore of debt on the books of Emami Cement.
“I cannot immediately say how much the pledge would come down after the completion of the transaction,” Agarwal said over telephone from Mumbai, soon after signing the binding agreement with Nuvoco Vista, the cement arm of Gujarat-based diversified Nirma Group.
It is widely expected that the pledge would be halved at the least. Promoter entities of Emami Ltd are estimated to have raised more than Rs 2,700 crore to fund other ventures such as real estate, hospital (AMRI) and retail chain (Frank Ross, Starmark). Earlier, it had to sell a 20 per cent stake in Emami in two tranches to pare pledge. But after falling to 46.81 per cent after the latest round of stake sale in June, the pledge leapt to over 70 per cent by the end of December, 2019.
Emami will declare its third-quarter results on Friday and a clarity on the impact of the cement divestment on debt is expected to be shared with investors and analysts.
In a statement, Manish Goenka, director of Emami Group, said: “This transaction is an important step in our group’s stated objective of becoming debt-free.”
Capacity count
The Emami founders have built a combined cement capacity of 8.3 million tonnes spanning four states over the last decade. The group operates one integrated cement plant in Risdah, Chhattisgarh and grinding units in Bihar, Bengal and Odisha. It has mining leases in Chhattisgarh, Rajasthan and Andhra Pradesh.
Agarwal said the deal would include the transfer of the mining leases.
UltraTech, Ambuja Cement and Star Cement were said to be in the race for Emami Cement.
Following the completion of this acquisition, Nuvoco will become one of the major cement players in India and specifically in the east, a company statement said, bringing the total cement capacity in eastern, northern and western India to 23.5 million tonnes (which includes the ongoing capacity expansion project in its Jojobera plant) and over 60 ready-mix plants.
In a statement, Hiren Patel, chairman of Nuvoco, said: “This acquisition is a momentous and transformational step in Nuvoco’s journey to becoming a major building materials company in India delivering superior performance. Emami Cement will enable us to take our cement business to the next level and continue to serve our customers with innovative and high-quality products that they trust”.
Shardul Amarchand Mangaldas acted as the legal adviser, while Deloitte Touche Tohamatsu India LLP was the financial diligence adviser and Arpwood Capital the financial adviser to Emami. Khaitan & Co advised Nuvoco Vistas and the Nirma group.
