Nirma cement anyone? Karsanbhai Patel inks Rs 9,300 crore deal with Lafarge Holcim

By: | Updated: July 12, 2016 7:44 AM

Nirma on Monday bagged the 11-million-tonne cement assets of LafargeHolcim for an enterprise value of $1.4 billion (R9,300 crore), beating larger rivals like JSW Cement and the Ajay Primal Group for the plants located largely in eastern India.

LafargeHolcimFounded in 1969 by Karsanbhai Patel, the Ahmedabad-based Nirma Group was a late entrant in the race for the Lafarge assets.(Reuters)

Nirma on Monday bagged the 11-million-tonne cement assets of LafargeHolcim for an enterprise value of $1.4 billion (R9,300 crore), beating larger rivals like JSW Cement and the Ajay Primal Group for the plants located largely in eastern India. The deal, LafargeHolcim said, is subject to approval by the Competition Commission of India.

Founded in 1969 by Karsanbhai Patel, the Ahmedabad-based Nirma Group was a late entrant in the race for the Lafarge assets. Apart from local players like JSW and Piramal Group, binding bids were placed by Brazil’s CEMEX and China’s Anhui Conch. Sources said Nirma bidding highest did not come as a surprise as the group has been trying to scale up its cement business for quite some time but with little success.

The deal does not entail the transfer of the brand so Nirma will have to brand the product in its own name. But analysts don’t a problem as it is a household name due to its detergent products.

Nirma bags Lafarge’s 11-mt cement assets for $1.4 bn

Nirma on Monday bagged the 11-million-tonne cement assets of LafargeHolcim for an enterprise value of $1.4 billion (R9,300 crore), beating larger rivals like JSW Cement and the Ajay Primal Group, who were also in the race to acquire the plants located largely in eastern India. The deal, LafargeHolcim said, is subject to approval by the Competition Commission of India (CCI).

With this acquisition, Nirma’s cement capacity, which is currently at 2 million tonnes per annum (mtpa), will go up to 13 mtpa, apart from enabling it to branch out of Rajasthan, where its current capacity is located, to the eastern region, which is seen as the best growing market for cement.

Lafarge got a very good price for its assets if compared with what Jaypee Associates got recently by selling its 21.2 mtpa assets to the Aditya Birla Group’s UltraTech Cement. For perspective, Jaypee’s assets were valued at R16,189 crore. This means that in the case of Lafarge the assets have been valued at $127 per tonne against $112 per tonne for Jaypee’s. While plants in eastern India command a higher value compared with southern and northern India where Jaypee’s assets are located, analysts like investment banker Anil Singhvi said that Lafarge’s plants are very old, so means it has got a very high price compared to what Jaypee got for its assets.

In fact, Reliance Infrastructure, which offloaded its 5.6 mtpa cement plants located in Madhya Pradesh and Uttar Pradesh to Birla Corp in February for R4,800 crore, got the best price at $140 per tonne. This was due to the region where they were located as well as because they were very new plants. This is the reason some analysts said that had Lafarge’s plants been newer they would have commanded an even higher price.

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Nirma will have to pay a transfer charge for the limestone mines to the government as per the provisions of the Mines and Minerals (Development and Regulation) Act. In the Jaypee-UltraTech deal, a sum of Rs 289 crore was paid to the government as transfer charges.

The deal does not entail the transfer of the brand so Nirma will have to brand the product in its own name. However, analysts don’t see this as any kind of disadvantage for the company as it is a household name due to its detergent products.

“This agreement is an important step in our 3.5 billion Swiss franc ($3.56 billion) divestment programme,” LafargeHolcim chief executive Eric Olsen said in a statement. “With this deal, two-thirds of the programme has been secured and the remainder of the programme is well on track. We are confident that we will meet our target by the end of this year,” he added. The proceeds of the deal will be used to pay down LafargeHolcim’s debt.

Founded in 1969 by Karsanbhai Patel, the Ahmedabad-headquartered Nirma Group was a late entrant in the race for the Lafarge assets. Apart from domestic players like JSW and Piramal Group, binding bids were placed by Brazilian cement maker CEMEX and China’s Anhui Conch cement. Sources said that the highest bid from Nirma did not come as a surprise given the fact the group has been trying to scale up its cement business for quite some time but with little success. The company has acquired land to set up a greenfield cement plant in Bhavnagar but has faced protests from the local farming community as well as faced regulatory hurdles.

Last year, Lafarge was directed by the Competition Commission of India to divest a part of its cement assets over antitrust concerns following its global merger with Swiss cement giant Holcim in April 2014 that created a total capacity of 68 mtpa for the merged entity. While Lafarge has a large presence in eastern India, Holcim through its subsidiaries ACC and Ambuja Cement has a presence in almost all the key markets in India. In August 2015, Lafarge received conditional clearance from CCI to sell its Jojobera and Sonadih plants in eastern India to Birla Corporation for an estimated R5,500 crore. However, the deal did not go through due to regulatory issues pertaining to transfer of limestone mining rights, following which Lafarge submitted a revised proposal to sell its entire cement assets spread across Rajasthan, Haryana, Chhattisgarh, Jharkhand and West Bengal.

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