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Emami Cement files draft papers for $136 mn IPO
Photo Credit: Shah Junaid/VCCircle

Emami Cement Ltd, part of the diversified Emami Group which also owns one of India’s top fast-moving consumer goods companies, has filed its draft red herring prospectus (DRHP) with the capital markets regulator to float an initial public offering (IPO).

The total IPO size is Rs 1,000 crore (around $136 million at current exchange rates). It comprises a fresh issue of shares worth Rs 500 crore besides a secondary market sale of shares worth Rs 500 crore by the promoters and promoter group entities.

VCCircle had reported in May this year that the Kolkata-headquartered Emami Group was looking to take its cement business public and the firm had shortlisted merchant bankers to manage the IPO.

A public issue and subsequent listing on the stock exchanges will see Emami Cement join nearly three dozen small and big listed Indian peers.

Aditya Birla Group company UltraTech Cement Ltd is India’s largest cement maker by installed capacity as well as by market capitalisation. UltraTech said in May that it would buy the cement business of Century Textiles & Industries Ltd in an all-stock deal. The merger would take UltraTech’s cement capacity to 109.9 million tonnes per year.

India’s cement sector has witnessed heightened deal activity owing to consolidation in the space. The sector had been going through a slowdown over the past few years because of oversupply. But that is likely to change.

Incremental demand is likely to outpace incremental supply over the next three years thanks to the government’s focus on housing and infrastructure as well as the waning impact of demonetisation, goods and services tax and the Real Estate Regulation Act, ratings firm CRISIL Ltd said in a recent report.

Consolidation in the sector gathered momentum after an amendment in 2016 of the Mines and Minerals (Development and Regulation) Act, 1957, which made it easier for buyers to take over limestone mining leases of the target companies. According to Crisil, cement sector deals worth a record Rs 32,000 crore were struck in the financial year 2016-17.

The acquisitions as well as an anticipated revival in the sector will help Indian cement firms improve cash flows and financial performance, the report said. Also, a large part of the acquired capacities are in the eastern and central regions, where demand growth is the highest.

Here’s a snapshot of the proposed IPO by Emami Cement:

Issue

The IPO comprises a fresh issue of shares worth Rs 500 crore besides a secondary market sale of shares worth Rs 500 crore by the promoters and promoter group entities.

Use of proceeds

The company has proposed to use Rs 400 crore out of the fresh net proceeds to repay or make advance payment of its debt besides using some part for general corporate purposes.

Bankers

Emami has hired IIFL Holdings, Axis Capital, CLSA India, Edelweiss Financial Services, and Nomura Financial Advisory and Securities (India) as merchant bankers to arrange and manage the share sale. 

Lawyers

Shardul Amarchand Mangaldas & Co is the legal counsel to the company.

Khaitan & Co and Sidley Austin LLP are India and special US legal counsel, respectively, representing the merchant bankers.

Company

Emami Group is a diversified business conglomerate founded in 1974 by RS Agarwal and RS Goenka. It owns businesses in sectors ranging from FMCG and personal care to healthcare, cement, newsprint and paperboard, biodiesel and edible oil, real estate, solar power, writing instruments and pharmacy retail.

The group flagship is Emami Ltd, which makes 300 personal- and health-care products. Some of the brands under its umbrella include Zandu pain balm, BoroPlus antiseptic cream, Navratna hair oil and Fair & Handsome skin cream. 

The Mumbai-listed company has a market value of about Rs 23,800 crore. Two other smaller group companies are listed on the stock exchanges -- Emami Infrastructure Ltd and Emami Paper Mills Ltd.

Emami Cement is among the group's newest ventures and was started in June 2007. It makes cement under the ‘Double Bull’ brand. The company has three facilities, and in the process of setting up another plant, which would take its total installed cement capacity to 9.3 million tonnes per annum  (MTPA) and 3.2 MTPA of clinker by April 2019. It is setting up a 2.5 MTPA unit in Odisha.

The group had incurred Rs 600 crore in capex through debt and promoter equity, a June 2017 India Ratings report shows.

The group has acquired limestone mines on lease in Rajasthan and Andhra Pradesh, and plans to set up cement plants in both the states.

The company primarily sells its cement to retail and institutional customers in West Bengal, Chhattisgarh, Odisha, Jharkhand, Bihar, Maharashtra and Madhya Pradesh.

Emami Cement has a distribution network of more than 2,200 dealers and over 5,000 retailers in 160 districts in India as on June 2018. Besides, the company has set up 110 warehouses-cum-sale depots at various locations to ensure the efficient distribution of its products.

Besides the cement units, its also has a 10 megawatt solar power plant in Gujarat and a 3 MW solar power plant in Tamil Nadu, for which it has 25-year power purchase agreements with state utilities. In all, it has around 70 MW projects under it.

Emami Cement had aimed to break even at the end of March 2018 and turn profitable in the current fiscal year on the back of higher sales, Chawla had told reporters in August last year. He had also said the company was expecting revenue of Rs 2,000-2,200 crore for 2017-18. 

Emami reported net profit of Rs 17.94 crore for three months ended June 2018 on revenue (from operations) of Rs 453.84 crore.

For fiscal 2018, it had reported a loss of Rs 78.56 crore on revenue of Rs 1,005.54 crore.

In 2016-17, its loss stood at Rs 38.05 crore on revenue of Rs 187.96 crore.

Considering the projected revenue, installed capacity and the size of the planned IPO, the company appears to be looking for a premium valuation compared to similar-sized peers, VCCircle estimates show.

For instance, cement maker KCP Ltd, which has an annual capacity of 3 million tonnes, has a market value of around Rs 1,600 crore.

HeidelbergCement India Ltd has a capacity of 5.4 million tonnes, revenue of Rs 1,961 crore for 2017-18 and a market value of about Rs 3,400 crore. To be sure, multinational companies such as HeidelbergCement typically trade at a premium as investors expect a delisting and open offer from the parent.

Orient Cement Ltd has a capacity of 10 million tonnes, revenue of Rs 2,300 crore for 2017-18 and a market value of Rs 2,500 crore.

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