Emami Group stake sale continues, now lines up paper biz, cement assets

Kolkata-headquartered FMCG conglomerate Emami has kicked off the process to sell controlling stake in its paper business along with select assets in its cement business, three sources with knowledge of the matter told Moneycontrol.

Promoters hold 74.9 percent in Emami Paper Mills, which is listed on the stock exchanges and has a market capitalisation of about Rs 550 crore based on Monday’s closing price. The company made Rs 1,542 crore of revenues and a net profit of Rs 44 crore in financial year 2018-19.

The Emami promoters are keen to dispel market concerns and lower their debt burden of around Rs 2,200 crore, which was raised by pledging their shares in listed flagship Emami.

"The promoters have mandated investment bank Nomura to sell a controlling stake in Emami Paper and the process is likely to be launched shortly. Domestic strategic players are likely to express interest in the target company along with overseas players," one of the sources cited above told Moneycontrol.

Emami Paper Mills has paper mills located at Balasore (Odisha) and Dakshineshwar (W.B, Kolkata). It is a major newsprint manufacturer catering to the publishing houses of eastern India with a 1,50,000 tonnes per annum capacity. The other line of business of the company is a 2,00,000 tpa capacity consumer packaging board (recycle grade as well as virgin grade), according to its website.

"Alternatively, the Emami Group is also exploring options to divest select cement assets for which there are no plans of expansion. As part of this exercise, it may opt to sell its newer mining assets acquired in Rajasthan and Telangana to either strategic or private equity suitors," a second source told Moneycontrol.

A third source confirmed this plan and said that "the plans for an initial public offer of Emami Cement are intact."

The company is looking to raise around Rs 1,000 crore through the proposed IPO, which comprises fresh issuance of shares worth Rs 500 crore, and the rest as offer for sale from existing promoters.

Emami Cement currently operates three manufacturing plants at Risda in Madhya Pradesh, Panagrah in West Bengal and Bhabua in Bihar, having a combined capacity of 5.6 metric tonne per annum. It is also in the process of setting up a cement grinding plant at Kalinganagar, Odisha.

Earlier this week, on Monday, the Emami Group promoters sold a 10 percent stake in Emami to raise up to Rs 1,230 crore.

The total promoter stake in Emami subsequent to the stake sale, stands at a controlling majority of 52.74 percent. The promoters intend to maintain this stake.

Following the stake sale, the company said in a statement, "The promoters of Emami Group have more than an adequate pool of diverse assets of value. With a view to further reduce the debt and reap the benefits of such investments for the benefit of Emami Group, the process of identification for divestment of such assets has been initiated. The above steps are being endeavoured with a strong resolve to pare the debt of the Emami Group in 6 to 8 months time."

This is the second time in a year that the promoters sold shares in Emami to reduce debt. In February, they had sold 10 percent stake to raise Rs 1,600 crore. The stake then was bought by SBI Mutual Fund, PremjiInvest, Amundi, IDFC, L&T Mutual Fund, PI Opportunities and Pioneer Investment Fund.

In response to a detailed query from Moneycontrol, Nomura, the banker to the paper business deal, declined to comment and an Emami Group spokesperson said, "We have issued a comprehensive statement yesterday on our stake sale. We wouldn't like to comment on any speculation. Our endeavour is promoter pledge reduction within 6-8 months as mentioned by us yesterday and we are taking necessary steps towards achieving the same."