Displaying items by tag: Nirma

Nirma Group won the auction for Emami Cement this week with an US$770m offer. The deal is subject to approval by the Competition Commission of India but it signals further consolidation for the Indian cement industry. It sets Nirma Group and its subsidiary Nuvoco Vistas in a strong position in Central, North and East regions of the country, if authorities agree to it.

Sometimes the press releases connected to corporate acquisitions can be accused of hyperbole but Nuvoco’s chairman Hiren Patel may be proved closer to reality than some when he said, “This acquisition is a momentous and transformational step in Nuvoco’s journey to becoming a major building materials company in India.” This is because Emami Cement operates one integrated cement plant in Risdah, Chhattisgarh and grinding units in Bihar, West Bengal and Odisha with a total installed capacity of 8.3Mt/yr. It also holds mining leases in Chhattisgarh, Rajasthan and Andhra Pradesh. Nuvoco Vistas runs four integrated plants in Chhattisgarh and Rajasthan and three grinding plants in West Bengal, Jharkhand and Haryana with a total installed capacity of around 15.2Mt/yr.

Put all of this together and Nuvoco Vistas has a capacity of 23.5Mt/yr. This may not make it a leader nationally, where it faces the likes of UltraTech Cement’s capacity of just under 110Mt/yr. Yet it does make the producer a serious player regionally in Chhattisgarh and Rajasthan. Backing this up are five grinding plants in East India. Hence, Hiren Patel might not be exaggerating all that much.

It’s difficult to ascertain the valuation of this deal given the mixture of integrated and grinding capacity that was on sale. Altogether, for its total of US$770m, Nirma Group has agreed to pay around US$93/t. Like any deal there must have been some haggling going on given that the projected price for Emami Cement drifted downwards as the auction went on. Emami Cement’s owners reportedly valued the company at around US$1.2bn before the auction and were subsequently said to be looking for US$1bn. Later, local media said that UltraTech Cement was likely to submit an offer around US$0.94bn.

In the wider context of the Indian cement industry, the picture looks similar to when this column looked at the country as a whole in December 2019. Since then the November 2019 production figures have been released showing that cement production grew in the first 11 months of 2019, to 308Mt, but at a far slower rate than in 2018. A growth in production in November 2019 also broke a downward trend since August 2019. Adding to this growing sense of optimism, analysts ICRA were forecasting increasing profitability for cement producers in the 2020 financial year due to ‘benign’ input costs. If correct then Nirma Group will have picked a good time to expand.

India: Nirma Ltd’s subsidiary cement producer Nuvoco Vistas has announced that it has entered into an agreement with Emami Group for the acquisition of the latter’s 8.3Mt/yr-capacity cement business, including a 2.5Mt/yr integrated plant in Chhattisgarh and three grinding facilities. The company says that with the completion of a capacity expansion to its 4.6Mt/yr Jojobera, Jharkhand, plant in early-2020 it will have a total installed cement capacity of 23.5Mt/yr. Nuvoco Vistas managing director Jay Krishnaswamy said, “This is a momentous development for us, and in line with our long-term ambition to become a leading building materials company delivering superior performance!”

India: Nuvoco Vistas Corporation, Nirma Ltd’s cement making subsidiary, is reported to be considering a partnership with either Apollo Global Management or Bain Capital to bid for Emami Cement, according to sources quoted by the Mint news outlet. Emami Cement’s owners RS Agarwal and RS Goenka are seeking a valuation of around US$1bn for the company, which operates a 2.5Mt/yr integrated plant at Risda in Chhattisgarh and a 2.5Mt/yr grinding plant at Panagarh in West Bengal.

Emami also acquired a 0.6Mt/yr grinding plant at Bhabua, Bihar in September 2018. In addition, the firm has mining assets in Guntur in Andhra Pradesh and near Jaipur in Rajasthan. Its main markets are in West Bengal, Chhattisgarh, Odisha, Jharkhand, Bihar, Maharashtra and Madhya Pradesh, where it markets its products under the Double Bull brand.

LafargeHolcim and HeidelbergCement both submitted expression of interest in Emami, while UltraTech Cement has also been linked to the firm.

The National Council for Cement and Building Materials (NCB) International Seminar is running this week in New Delhi and this gives us a good opportunity to take a snapshot at the world’s second largest cement industry.

Data from the Ministry of Commerce & Industry shows comfortable cement production growth of 4.4% year-on-year to 255Mt in the first nine months of 2019. As graph 1 shows there was higher production growth in 2018 but this followed a decline in 2017, due to partly to the government’s demonetisation policy. October 2019 confirms a trend of falling year-on-year growth from August 2019 onwards following a peak growth rate in mid-2017.

Graph 1: Indian cement production in the first nine months of the year, 2015 – 2019. Source: Indian Ministry of Commerce & Industry.

Graph 2: Year-on-year change in monthly Indian cement production, 2017 – October 2019. Source: Indian Ministry of Commerce & Industry.

Analysts like ICRA have blamed the growth slowdown on the general election in mid-2019 and then the monsoon rains. By region in the six months from April to September 2019 it noted a slowdown in demand due to slowing government projects in northern, eastern and central areas. Labour concerns were reported in the north, centre and Gujarat in the west. Raw material shortages were picked up on such as water in Maharashtra and sand in the east and Andhra Pradesh. Positive growth was reported in Kerala, driven by post-flood reconstruction and low-cost housing schemes, and in Karnataka due to general construction activity. Broadly, UltraTech Cement, the country’s largest cement producer, in its November 2019 investor’s presentation, agreed with this assessment. It noted growth in the northern region and declines elsewhere. Like ICRA it too picked up on low cost housing declaring it to be a ‘key cement consumption driver.’

Away from the figures the main news stories have been continued consolidation such as the auction for Emami Cement and UltraTech Cement’s acquisition of Century Textiles and Industries. The sale of the former for plants in east and central regions has been linked to all the major local producers, including those owned by LafargeHolcim and HeidelbergCement. A report in the Hindu newspaper last week quoted a source placing UltraTech Cement and Nirma Group as the frontrunners with a valuation of around US$700m and an announcement at some point in December 2019. Despite UltraTech Cement’s market dominance nationally, its 17% production share in the east is low compared to its presence elsewhere. Nirma Group’s subsidiary Nuvoco Vistas is one of the smaller producers but, notably, it picked up Lafarge India’s assets in 2016.

Investment in new production capacity has continued with announcements from both JSW Cement and HeidelbergCement in recent weeks about expansion plans well into the mid-2020s. This follows planned projects from Dalmia Bharat Cement and Ramco Cement as well as orders from the JK Cement and Shree Cement. This ties into the capacity growth forecasts of around 120Mt over a similar timescale that the analysts were predicting in the middle of 2019. JM Financial, for example, pinned most of this growth on the south followed by the east and north. However, The India Cements said in November 2019 that it was delaying its expansion projects in Uttar Pradesh due to slowing government spending.

As is usual for a country with a low per capita cement consumption, on the national scale, one of the tensions in the Indian cement industry has been the balance between the capacity utilisation rate and the commissioning of new capacity. Its utilisation rate was below 60% in 2018 and a number of producers started reporting the negative effects of higher input and raw materials costs on their financial results. Knowing when to stop and start capacity growth is critical in this kind of environment. Specifically in India’s case curveballs such as government action on pollution and the country’s growing need for imports of coal as well as a burgeoning waste fuels sector are factors to keep an eye on. Finally, general trends such as UltraTech Cement’s focus on the Indian market, despite buying assets outside the country, are also compelling to watch as it chooses to concentrate on just one country. There are parallels here with other similarly-sized multinational that have also been focusing on core markets elsewhere in the globe.

India: Nirma Group’s subsidiary Nuvoco Vistas plans to invest US$157m on captive power plants and waste heat recovery systems for three of its cement plants in Chhattisgarh, Jharkhand and Rajasthan. The cement producer plans to save around US$15m from the upgrades over the next two to three years, according to the Hindu newspaper. Nirma Group purchased three cement plants and two grinding plants from Lafarge India with a total production capacity of 11Mt/yr in 2016.

India: The East Singhbhum district administration has asked for guidelines from the government of Jharkhand regarding the purchase of the Jojobera cement plant by Nirma from Lafarge India. There are no provisions for transfers of leased land to any third party without the prior approval of the state government with relation to agreements struck by Tata Steel, the plants previous owner, said East Singhbhum deputy commissioner Amit Kumar to the Hindustan Times.

"We are seeking state government's guideline on action to be taken over the reported transfer of management and bank accounts of Jojobera Plant here by Lafarge Holcim to Nirma Limited even though they are yet to respond to our notices from July 2016," said Kumar.

Lafarge India has said that the transfer of management and accounts for the Jojobera plant was completed on 6 -7 October 2016 following approval by the Competition Commission of India for the sale. It agreed to sell five cement plants to Nirma for US$1.4bn in July 2016.

India: Officials in Jharkhand have said that the recently announced sale of Lafarge India to Nirma will require state approval to transfer land at the Jojobera cement plant. The East Singhbhum deputy commissioner, Amit Kumar, has been asked to calculate the revenue that the government stands to gain from such land transfer and its registry, according to the Hindustan Times. Previously, the district administration served a notice to Lafarge India on 10 October 2015 when Lafarge India was in talks with Birla Corporation regarding the sale of some of the same assets.

"It's mandatory to seek state government's prior approval for third-party transfer of leased land, in this case leased to Tata Steel. The district administration had informed this to the company, requesting it to seek government's approval," said KK Sone, the state land and revenue secretary. "It has to comply with the administration's notice. Any violation would draw administrative, civil as well as criminal actions."

The Jojobera plant was built on government land leased to Tata Steel. Tata Steel then signed a business transfer agreement for its Jojobera plant with Lafarge India in March 1999.

Another week and another massive Indian cement industry deal. This week Nirma has won the bidding for the assets of Lafarge India that LafargeHolcim is selling. Before we get too carried away though, the diversified conglomerate entered into a letter agreement with LafargeHolcim on 7 July 2016 to pay US$1.4bn for three cement plants and two grinding plants with a total cement production capacity of 11Mt/yr.

It is worth noting that this is only a letter agreement. LafargeHolcim signed one previously with Birla Corporation for some of the same assets in August 2015. Unfortunately, an ambiguous amendment to the Mines and Minerals (Development and Regulation) (MMDR) Act struck in January 2015 made it unclear how easily mineral rights could be transferred with an industrial plant sale. After much likely internal squabbling Lafarge India said it was selling all of its assets in January 2016 followed by threats of legal action by Birla.

Some commentators in the Indian media have flagged the new deal as expensive for Nirma. It will be paying US$127/t for the new capacity compared to the US$118/t that UltraTech Cement is offering Jaiprakash Associates for its laboured deal. The Nirma deal comprises integrated cement plants at Sonadih in Chattisgarh, Arasmeta in Chattisgarh and Chittorgarh in Rajasthan, and cement grinding plants at Jojobera in Jharkhand and Mejia, West Bengal. Other assets include 63 ready mix concrete plants, two aggregate plants and a blending unit.

However, unlike UltraTech, Nirma is a relatively new entrant in the cement industry. Its main industries are in detergents and soda ash manufacture. It invested US$194m in a 2.28Mt/yr cement plant in Rajasthan that was commissioned in November 2014. It also ran into environmental issues over a proposal to build a new cement plant at Mahuva in Gujarat. One report compiled under request by the Indian Supreme Court in 2011 cited the presence of Asiatic lions as a reason for concern!

Lions aside, Nirma may be paying over the odds for its new cement business but it will gain a bigger presence in the industry quickly and diversify from its other existing industries in which it faces fierce competition. The Lafarge India plants are mostly in eastern Indian states compared to Nirma’s plant in Rajasthan in the west, giving it a reasonable geographic spread.

Nirma reportedly plans to finance the purchase through a leveraged buyout and the Mint business newspaper has described this as the largest transaction of its kind in India to date. The risk here will be how the Indian cement market plays out in the short term. LafargeHolcim reported that its cement volumes fell in 2015, although this has since picked up in the first half of 2016. UltraTech did better in its 2015 – 2016 financial year but it reported a slow construction market. Longer-term demographic trends suggest that the cement industry will grow, especially in the east of the country. With this in mind it may be a while before Nirma’s cement business roars.

India/Switzerland/UK: The five bidders that gave their final bids for Lafarge India’s 11Mt/yr cement business have been called to London, UK for the final leg of discussions, which started on 7 July 2016. Multinational bidders, including Mexico’s Cemex and China’s Anhui Conch, are believed to have bid aggressively. Domestic bidders Ajay Piramal Group, Nirma and Sajjan Jindal-led JSW Cement also submitted bids earlier in the week.

The bids are in the range of Euro1.19-1.33bn, which implies an enterprise value of US$108-121/t, comparable to UltraTech’s recent acquisition of JP Group’s cement assets for US$116/t.

“This discussion in London could take three to four days to finalise,” said a banker familiar with the development. “The winner will be decided not just on the price quoted for assets but also other conditions for the bid,” he said. Once the winning bid is decided, an exclusivity agreement will be signed with the bidder and it will take around three months to complete the deal.