NIRMA-LAFARGE DEAL

CEMENT INDUSTRY IN INDIA Second largest cement market Dominated by private Higher share of large plants Large concentration in South and

NIRMA LAFARGE DEAL Lafarge in India: Nirma in India: Lafarge entered the Indian market in 1999, through its cement business One of the leading players in the cement industry in Eastern and Central India Plants across the country Nirma in India: Relatively new player in Cement Industry Already has 2mtpa cement capacity in Rajasthan Putting up a new plant in Gujarat

PROS Right time for diversification: As Nirma is continuously losing its market, It's the right time for diversification With this deal, Nirma will emerge as India's sixth largest cement manufacturer. Advantage of experience and infrastructure: Analysts believe that the company with its existing expertise in limestone mining - can leverage its knowhow to keep costs low. The Nirma marketing and distribution channels can also be integrated with that of Lafarge's 

PROS The cement sector is now poised for an uptrend. Shares of leading cement firms have appreciated significantly in the last few months, following strong pre-monsoon demand and price increases. Three-fourths of the capacity is in the east, a more lucrative market, both in terms of demand and pricing. Projects like Smart Cities will also bring a spark. This deal would get Nirma, Lafarge's RMC business that has 71 plants and highly successful brands like Concreto, Lafarge PSC and Duragaurd. As Nirma has an experience of cement business before and problems of cash doesn't seem an issue with the company owners, they can grow this deal for profit.

CONS The deal has been considered a little costly, considering Ultratech-Jaypee deal. Moreover, entry of new player in last few years in the east market and presence of major player like UltraTech Cement Ltd and ACC Ltd may test Nirma's flexibility very well. The question is: will Nirma undercut cement prices to establish itself and retain the hold that Lafarge has in the region?  The deal may hit a roadblock if Lafarge fails to obtain approval of the state government for transfer of its Jojobera plant site land to Nirma. It’s mandatory to seek state government’s prior approval for third-party transfer of leased land, in this case leased to Tata Steel. Due to increasing per capita income of India in the last decade many consumers are considering Nirma as inferior goods when there are big players like HUL, P&G and Henkel. Middle segment has started to move towards comparatively big brands and the lower segment is substituting Nirma by other cheap and local brands. In this scenario, will Nirma Cement establish a good reputation among consumers? 

CONS A distinct lack of innovation and an unrelenting focus on affordability: Although Nirma, as a company, is making profit but it is not doing well with its flagship product. The group has rather started focusing more on diversification. Anti-dumping Duty: In the financial year 2016, 60% of Nirma's income came from Soda ash and Linear Alkyl Benzene. Due to anti-dumping duty Chinese market is out of competition. Financed by debt: The deal would have to be largely financed by debt. Nirma is only worth some Rs 3,900 crore ($582 million) making this perhaps the biggest leveraged buyout in India.

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