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Nirma In The Top 6 With Lafarge's Assets Worth $1.4 Billion

The purchase of Lafarge's assets will enable Nirma to diversify its business and enter the sector with a strong presence

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The question is asked by everyone, why did Nirma choose Lafarge? The deal is one of the most surprising acquisitions of 2016, wherein this kind of investment in cement industry was not being predicted post slowdown since 2012. The acquisition-bidding took place on July 10-11th.

The Amazing Takeover Looking For Stability
However, Nirma's decision cannot be described as a rushed one. As the Gujarat firm had been planning to revamp its presence in the cement sector, since a long time. Lafarge India is part of Lafarge Holcim, the world's largest cement company. And with this takeover, Nirma has climbed up the ladder to secure the position of the sixth largest.

Right since Modi government's inclination has been shifted towards infrastructural development, Nirma had thought of enhancing its capacity from 2 million tons per annum at present in Rajasthan.

Well the news of acquiring a leading cement-maker company Lafarge India, raised many eyebrows as "Nirma" in our minds has been synonymous with low-cost detergents and soaps. Though it is a well- known that Nirma produces detergents, soaps and soda-ash among others and has a turnover of Rs 7300 crore.

On the same lines, Birla-owned UltraTech is also sealing its deal to buy the bulk of the Jaiprakash Group's plants in the country for around Rs 16,200 crore. With these two acquisitions the cement business in India has achieved effective consolidation around four or five major players with a nationwide presence.

The purchase of Lafarge's assets will enable Nirma to diversify its business and enter the sector with a strong presence. It will also help enhance its capacity to produce and hold a bigger market share through three cement plants, two grinding stations with capacity of about 11 million tons a year.

The Risk Involved Due To Slow Economy
The decision is being termed as a big risk by many of the economist as Nirma worth is only some Rs.4000 crore. A large chunk of the payment is being done through debt-financing and rest equity. Bonds of Rs. 4000 would be issued to raise funds -making this perhaps the biggest leveraged buyout (LBO) in India. But the opportunity for the company is also huge.

Well there is another fact to discuss here, that India is the world's second-biggest cement producer behind China. And the demand is rising at pace we cannot imagine. In the current fiscal year, cement companies expect the demand to grow at the rate of 6-8 per cent, which presents India immense opportunity to win.

The conventional businessmen Patels have been known to take very thought out decision even at the times of crisis. One would be further astonished to know that Lafarge's parent company, Lafarge Holcim, the world's biggest cement maker shall continue to produce at its regular capacity of 60 million tons in India through its subsidiaries ACC and Ambuja Cements and will use the proceeds of the deal to pare down its debt.

LH has for long been involved in the process of disinvestment from several countries like South Korea, Saudi Arabia and now India.

Nirma's Presence

Founded in 1984, Nirma came in when Indians were smitten by Hindustan Unilever's Surf. Karsenbhai Patel priced his product Nirma at Rs 3.5 per kilogram. It got widely accepted in rural households and by the middle-class in the urban areas. Soon after Nirma began advertising on the Indian television and other marketing strategies and the brand became a household name.

Nirma's jingle rang a bell in the minds of the consumers for years and has still not been forgotten. It was able to even rattle HUL's market share and became the number one detergent known in the country. Though its popularity was short-lived and the sales began dropping with new players entering the market.

Sales began dropping and the group diversified into chemicals, education and cement. The baton was then handed over to sons: Rakesh and Hiren and son-in-law Kalpesh Patel. Nirma's big bet on cement, this year is reportedly taken by Hiren Patel and it is evident that the younger generation has been quick to outwit bigger rivals such as the Ajay Piramal of Piramal Industries and Sajjan Jindal's JSW Cement who were being predicted as frontrunners for the Lafarge acquisition.