The diversified Emami Group is seeking a valuation of Rs 8,000-9,000 crore for its cement business, which it intends to sell to raise money to pare debt. Potential buyers, however, feel the valuation which is sought is high.
A source close to this development told Business Standard that the valuation which is being sought is calculated based on globally accepted parameters based on per tonnage of cement production capacity, which stands at 8.3 million tonne per annum (mtpa).
According to this source, mining leases in Chhattisgarh, Rajasthan and Andhra Pradesh are also being calculated as part of the valuation. This component is over and above the cost of plant and machinery, land and installed capacity.
Interested buyers on the other hand, feel it is overstretched.
“The quality of plant and machinery, the logistics set-up, transportation to ferry clinker and the cost of production have also to be taken into consideration while arriving at the valuation. I think, it is a bit overvalued,” one of the interested buyers told Business Standard.
Although India Ratings & Research is of the view that Emami Cement is a low-cost producer, Shree Cement, one of the interested buyers, has opined differently.
“Their (Emami Cement’s) cost of production is not as low as being perceived.
It is as per industry standards,” one of the prospective buyers told Business Standard.
Asked about the valuation, an Emami Cement spokesperson declined to comment.
Other sources among the buyers said that while the total installed capacity of Emami Cement is pegged at 8.3 mtpa, brownfield and greenfield projects are underway and will take some time to complete.
While Emami Cement has a 2.5 mtpa integrated manufacturing plant at Risda in Chhattisgarh and another 2.5 mtpa plant in Panagarh, West Bengal, its unit in Jajpur in Odisha is yet to be commissioned. A brownfield expansion at its plant in Bhabua in Bihar to increase capacity by another 1.2 mtpa from the current 1.8 mtpa is still underway.
Trial production at the Jajpur unit, however, commenced in December 2018.
Buyer sources said although the Panagarh plant has a 2.5 mtpa installed capacity, Emami Cement has approvals for producing only 2 mtpa.
On the other hand, its Risda plant has installed Waste Heat Recovery System (WHRS) where the waste from the plant is recycled to generate power. A captive 30-Mw power plant is also installed in this plant and the company sources nearly all of its electrical energy requirement for this unit internally.
While acknowledging the captive power plant and the WHRS at the Risda plant to help keep costs under control, interested buyers pointed that Emami Cement has no coal linkages and depend entirely on sourcing coal from the market.
“Sourcing the entire amount of coal from open market tends to create some level of uncertainty over costs, as a large portion of production cost then tends to depend on how global prices move,” an interested buyer said.
Emami Cement had a total debt of Rs 2,246.76 crore as on 31 March, 2018, consisting of Rs 2,093.86 crore as secured term loan from banks and financial institutions and Rs 152.90 crore working capital borrowings from the banks.
Ratings agency Acuite noted that its revenues have grown significantly to Rs 989.25 crore in 2017-18, due to better cement realisation following improved product demand. Operating profit improved to Rs 71.81 crore for 2017-18 from a negative operating profit in 2016-17 on account of high discounts offered to the dealers.