Nirma cements $1.4-bn Lafarge India buyout

Ahmedabad-based firm to fund deal through equal amount of equity and debt

Nirma, the Ahmedabad-based detergent and soap maker, on Monday announced its acquisition of Lafarge India’s 11-million-tonne (mt) cement business for $1.4 billion (about Rs 9,478 crore), including debt.

The valuation is around $127 per tonne, lesser than the $151 per tonne valuation Lafarge commanded in its aborted deal with Birla Corp last year and marginally higher than what UltraTech Cement paid to acquire Jaiprakash Associates’ assets last week.

The company, set up by Karsanbhai Khodidas Patel (71), emerged the most aggressive bidder, leaving Ajay Piramal’s Piramal Enterprises and Sajjan Jindal’s JSW Cement far behind, bankers said. Nirma already has a 2.28-mt capacity cement plant in Rajasthan that it commissioned in November 2014 after investing Rs 1,300 crore.

“The Patels of Nirma were aggressive to get into a market that is set for growth over the long term,” said a banker familiar with the development.

In a statement, Nirma said it will fund the deal through equal proportion of equity and target-level financing. The proposed deal was in line with the group’s strategy to pursue organic and inorganic business expansion to develop strong operations across diversified business verticals. “The proposed transaction is effectively an extension of the ‘market and product expansion’ strategy,” Nirma said.

“This acquisition is a transformational step for the group’s cement business. With a strong platform like Lafarge’s India business, we plan to take the cement business to the next level,” said Hiren Patel, managing director, Nirma.

According to investment bankers, Nirma will sell bonds worth about Rs 4,000 crore ($596 million) to fund the acquisition. It reported a consolidated net income of Rs 760 crore for the year ended March 2016 and net sales of Rs 7,240 crore, according to ratings agency CRISIL.

“With the entry of new players in the eastern market in the last couple of years, the supply will affect pricing power in the near term. In that context, Nirma has valued the Lafarge deal a little on the higher side,” said Ravi Sodah, cement analyst at Elara Securities. Shree Cement and JK Lakshmi Cement have added around six mt in the eastern market in the past few years.

Besides its recent foray in cement, Nirma has a presence in soaps and detergents, salt, soda ash, caustic soda, linear alkyl benzene and other chemicals.

With this acquisition, Nirma said it would be among India’s top 10 cement players with a footprint in eastern, northern and western India and a combined capacity of 13 mt.

This is Lafarge’s second attempt at selling its Indian assets so that it can complete its global merger with Swiss cement giant Holcim, which was announced in April 2014. This would create the world’s largest cement company. The deal had raised eyebrows of anti-trust watchdogs in several countries, including India.

“With the proposed buyer we have found the right partner who will be able to develop the business further in the interest of all our stakeholders,” said Eric Olsen, chief executive officer, LafargeHolcim. Arpwood Capital and Citigroup advised LafargeHolcim on the sale.

In India, Holcim units, Ambuja Cements and ACC have 60 mt of annual capacity. Lafarge, on the other hand, has 11 mt capacity in India, of which 7.8 mt (70 per cent) is in Chhattisgarh, Jharkhand and West Bengal. Holcim’s ACC and Ambuja have capacities of 6.1 mt and 4.6 mt, respectively, in the same region. Hence, the Competition Commission of India (CCI) asked Lafarge India to sell its 5.15-mt capacity in eastern India by December 31, 2015 to complete the merger.

In August 2015, the company signed an agreement with Birla Corporation to sell the asset for Rs 5,000 crore. However, the deal got into trouble as a change in regulations prohibited transfer of mining rights in case of an asset sale. Later, Lafarge submitted a revised proposal to CCI to sell its entire India business.