Nirma to buy Lafarge's India cement assets for Rs 9,300 crore

Nirma on Monday confirmed that it has bought LarfargeHolcim's India assets for an enterprise value of USD 1.4 billion (Rs 9300 crore plus) for a total capacity of 11 million tonne per annum.Lafarge India operates three cement plants and two grinding stations. Lafarge will use proceeds from divestment to reduce debt further.The valuation is higher than market expectations. The final three contenders were Piramal Group, JSW Group and Nirma.CNBC-TV18 in May had first reported that Nirma had joined the race to buy this asset. Investment banker Anil Singhvi said LafargeHolcim has got a very good deal and expressed surprise at Nirma's aggressive price to outbid Piramal and JSW's pricing. He added that he was not too concerned with the fact that the Lafarge brand will no longer exist as Nirma too was a very wellknown household brand. "Nirma will do well," he said.He added that the deal was unlikely to set a new benchmark for the pricing of other cement deals in the offing -- even as action seems to have firmed up in the space following the recent Jaypee-UltraTech deal."I do not see a change in the pricing scenario," said Singhvi."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 program is well on track. We are confident that we will meet our target by the end of this year."The deal, the proceeds of which will be used to pay down LafargeHolcim's debt, is subject to approval by the Competition Commission of India.Below is the transcript of Anil Singhvi’s interview to Anuj Singhal, Nisha Poddar and Ekta Batra on CNBC-TV18. Anuj: Deal done, your first thoughts on the valuations at which the deal is being done. A: I think Lafarge has got a very sweet deal. USD 1.4 billion for almost a 10 million tonne capacity is a very good deal. So, I think Nirma has paid a very high valuation for larfarge’s assets. So, Lafarge should be very happy about it. Nisha: Of course, at higher valuations, but the assets also are far superior to the others, but the point that we were discussing earlier as well, what is it that you are looking at in terms of Nirma’s play in the entire cement industry now? How is it positioned? It is looking very aggressive and of course, it cannot use the brand value of that particular cement unit as well. So, what is it that comes to the table of Nirma and how is it positioned in the pecking order now in the cement industry? A: You have raised 2-3 points and I will answer one by one. First of all, you are saying quality of these assets are far superior than Jaypee Cement assets. I beg to differ. Some of these assets are very old assets. As you will recollect, one of the assets was sold by Tata Steel, Jamshedpur facility, including grinding station. One was Raymond’s very old plant. So, Lafarge assets are really not very so to speak, up to the date assets. They are dated assets as compared to Jaypee’s assets. So, first and foremost is that. That is why I am saying Lafage has got a very sweet deal as compared to what Jaypee has got from UltraTech Cements. Second point is that Nirma as a very surprised play, Nirma has gone really very aggressive to bid for USD 1.4 billion for these assets. I am a bit surprised that this kind of aggression is there by Nirma. And you made a very valid point that Lafarge brand will not be available, but Nirma is a household brand, so I do not think they will suffer on account of not having known the brand purse in the market whether it is for detergent or for cement. It is a brand which has a very high record. So Nirma should be able to do a good job, plus they already have a presence in Rajasthan, so Rajasthan asset of Lafarge will definitely help them. And Nirma has been scouring for cement assets for a while. They wanted to buy some of the cement plants in Gujarat, then they were looking at some acquisitions in Rajasthan, but this is a big one. So, Nirma will now emerge as a very serious player in cement industry, they will be almost close to 13-14 million tonnes. So, it will get into a reckoning in the cement industry and I am very pleasantly surprised that Nirma has been able to out-bid JSW Cement and Piramal. This is something very amazing. Anuj: Going back to the earlier Jaypee deal as well, which again was a very good asset at a really cheap price, do you get a sense that this is still a buyer’s market even though some of these assets are good, but the kind of pricing they are fetching right now? A: It is a mixed bag actually. As I often maintain that the replacement value for a good cement plant, would be USD 105-110. So, it will all depend upon who is wanting to buy and what area, because geographical reach is also a very important factor in cement, as you know, it is a regional play. So, if you want to have your footprints, like in Nirma’s case, they wanted to have it in the eastern market, because they are already there in Rajasthan. So it makes somewhat sense for Nirma to pay a premium, but Lafarge has got a much better deal. It is almost Rs 10,000 crore at USD 1.4 billion. I had to see a little more nuances for this, because there is some more payments to be made because of the limestone deposits to be transferred and all that, those details have to be seen, but on the face of it, Lafarge has got a much better deal than Jaypee got from UltraTech. Nisha: So, of course, Rs 289 crore had gone on account of that transfer fee on account of the Mines and Minerals (Development and Regulation) (MMDR) Act in terms of Jaypee Associates and UltraTech deal and we still have to figure out this one, how much of outgo is there. But, on the other hand, there will be more assets. Jaypee Associates still has some seven million tonnes of cement assets. Piramal and JSW are looking extremely aggressive at this point. With this transaction, do you think that the overall valuations are going to zoom up? It is going to make it more difficult for Piramal and JSW to acquire, now they will have to shell out more? A: These assets, which are now residue assets after UltraTech has nought, I do not think it will excite Piramal and JSW, I do not think so. So, I would not be surprised if they do not really bid for it. But if they bid for it, they will be the same valuation what UltraTech paid for Jaypee. So, I would not consider Nirma’s payment to Lafarge as a benchmark, because as I often told you in the past, cement asset sale versus cement business sale, they will always see a premium for the business. Here Lafarge has sold a full signed business including people and all that which is far superior than just selling the cement assets. So, here except for the brand Lafarge which is not available, Nirma has got virtually the entire business with good EBITDA margins and all that in place which is not the case in case of Jaypee. So, I do not think the residual assets of Jaypee will fetch these kind of USD 125-130 valuation, I doubt it. Ekta: What happens to the dynamics of the cement industry now in terms of pricing power because we have heard of two consolidations which have taken place just in the past 10 days now? Your sense, does it affect the dynamics at all? A: No, it will not make much of a difference, because Jaypee was also a very large player. So, a large player selling to other large player does not change the pricing scenario. Even Lafarge. In fact, according to me, Nirma getting into the eastern market and since they do not have a brand, there could be a little bit of a shake-up in the eastern market in terms of pricing because they would like to then work around their own market share. They would not like to lose the market share to other players because of the change of the brand. So, there could be some pressure in the pricing, but overall, I do not see much of a change in pricing scenario because of these two very large transactions in the industry. (With inputs from Reuters)