Nirma Ltd.

and LafargeHolcim
Deal Snapshot
Enterprise value of Target

$1.4 billion (~ Rs. 9,400 crores)

Assets Acquired

3 cement plants & 2 grinding

stations

Capacity acquired

11 million tonnes per annum (mtpa)

Nirma: BNP Paribas

Financial Advisors

Lafarge: Arpwood Capital Pvt Ltd &

Citi

Nirma is set to become the 6th largest cement manufacturer in India after an
aggressive bid to buy LafargeHolcims cement business. Industry stalwarts like
Piramal Group, and JSW Cement Ltd were also vying for Lafarge Indias assets.
The buyout will mark the second biggest acquisition in the cement sector after
the proposed purchase of Jaypee Cement by UltraTech for Rs 16,189 crore.
LafargeHolcim will continue to operate in India through its subsidiaries ACC Ltd.
and Ambuja Cements Ltd. with a combined cement capacity of more than 60
million tonnes.

Industry Overview
With nearly 390 million tonnes of cement production capacity in 2015, India is
the second largest cement producer in the world. By 2025, cement production
will reach to 550 million tonnes.
The housing sector is the biggest demand driver of cement, accounting for about
67 per cent of the total consumption in India. The other major consumers of
cement include infrastructure at 13 per cent, commercial construction at 11 per
cent and industrial construction at nine per cent.

The cement/GDP growth multiplier is expected to be 1.2x, leading to cement

demand growth of 7 and 8 per cent in FY16 and FY17, respectively. The
Northeast is more leveraged to public spending trends than any other region in
India.
Post the transaction, capacity of major players will stand as below:

Production Capacity (Mn mtpa)

91
68

25.6

25

15.5

13

About Nirma Limited

Founded by Dr. Karsanbhai Patel and headquartered at Ahmedabad in Gujarat
(India), Nirma Limited is one of Indias diversified conglomerates with businesses
across industrial and consumer products ranging from soaps, detergents, salt,
soda ash, caustic soda, cement, packaging and has a turnover of approx. Rs
7300 Crores

About LafargeHolcim
With a well-balanced presence in 90 countries and a focus on cement,
aggregates and concrete, LafargeHolcim is the world leader in the building
materials industry

Deal Terms
The Deal was done at an enterprise value translating to Rs 8545 per tonne. The
enterprise value per tonne is broadly in line with the recent deals in the cement
sector
Recent Cement Deals - Valuations
Company
LafargeHolcim-Nirma
Ultratech-Jaypee Associates

EV Per Tonne
8,545
7,636

Birla Corp-Reliance Infra

8,727

Sources of Funding
Deal Funding
Source of Funds
Loans
Equity
Bonds

Amount (INR in
Cr.)
3400-3500
1900-2000
4000

From the above table it is evident that nearly 80% of the total deal value will be
paid through borrowed funds, making it a Leveraged Buyout (LBO). A leveraged
buyout or LBO is a form of acquisition where one company acquires another firm
and finances most of the deal with borrowed money. The borrowing is often done
using the target companys assets as collateral.

Deal Rationale
Nirma is trying to become a commodity conglomerate. Nirma already has 2
million tonne cement capacity in Rajasthan and is in the process of putting up a
new capacity in Gujarat. The transaction will ramp up Nirma's fledgling cement
business to 13-million-tonne capacity from two million tonnes in Rajasthan. It has
over the past couple of years backwardly integrated its business by starting
manufacture of soda ash and mining lime stones (Limestone is a key raw
material for soda ash). Lime stone is also a raw material for cement
manufacturing. Thus, its expertise in lime stone mining will help Nirma keep the
costs low. Through this deal, Nirma will get a sizable capacity at one go and
importantly a capacity majorly located in the east, which is a lucrative cement
market. With increased investment in infrastructure by the government and
various projects already in the pipeline, the northeast region should be the
highest growth (sub) region in the country. The estimated demand in FY 16-17 for
cement in Northeast India is 5.2 mtpa while the current supply in the region is
about 2.2 mtpa, thereby creating an opportunity for cement companies.
LafargeHolcim emerged when Frances Lafarge and Switzerlands Holcim merged
in July, 2015. It is now the worlds biggest cement maker. In India, Holcim,
through its control of Ambuja Cement and ACC, has 60 mt of capacity while
Lafarge has a capacity of 11 mt in India. LafargeHolcim was directed to sell 5.15
mt of its east India assets by Competition Commission of India as a prerequisite
for the global merger of Holcim and Lafarge to be consummated in India. In
August 2015, the company agreed to sell its east India cement assets to Birla
Corp. The entity is divesting its domestic business so that it can conclude its
global merger with Swiss' Holcim by complying with provisions of Competition
Commission of India. Post divestment, LafargeHolcim with ACC and Gujarat

Ambuja in India will have a combined capacity of more than 60 million tonnes,
making it the second largest cement manufacturer behind UltraTech
The key thing to watch out for now are:
1. The pricing behavior of Nirma, the new entrant and how that changes the
cement pricing dynamics in the eastern region of India.
2. The outlook on the companys rating which may be revised to negative if
Nirma undertakes a large debt-funded capex program or acquisition that
considerably weakens Nirmas financial risk profile