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Canadian investment firm Brookfield Asset Management is likely to buy Emami Power, the solar power business of Kolkata-based Emami Group. The size of the deal could not be verified.
The move is seen as part of the diversified conglomerate’s (Emami) attempts to bring down debt at a group level and also redeem promoter pledge in its flagship FMCG arm, Emami Ltd. The Goenka and Agarwal families continue to hold majority stake in the various Emami group companies.
Confirming the transaction, Harsha V Agarwal, Director, Emami, said, “As part of our divestment plan of non-core business assets, we are happy that we could conclude the deal with Brookfield Asset Management to sell our solar power business.”
While Emami Ltd is listed on the bourses, the solar power unit is not. Emami Power says it has set up 11 MWp ( mega watt peak) of solar power projects in Karnataka, 10 MWp solar power projects in Gujarat, a 3.3 MWp solar power project in Tamil Nadu, and a 22.5 MWp solar power project in Uttarakhand.
Positive for Emami
According to Abneesh Roy, Senior V-P, Institutional Equities Research, Edelweiss Securities, the non-core asset sale by the promoters is a positive for its listed FMCG business.
“Another sale of non-core asset sale by Emami (Ltd) promoters after exit in cement. Positive for listed Emami as more visibility on reducing pledged shares of promoter,” he said.
Incidentally, rating agency Crisil while reaffirming its ‘CRISIL A1+’ rating on the commercial paper programme of Emami Ltd in a March 31, 2020 report, said the consolidated revenue growth is likely to moderate to 3.9 per cent in fiscal 2020 due to adverse environmental conditions and slowdown in rural demand, while operating profitability is expected to be healthy at 26.8 per cent.
It further added that Emami Ltd has strong liquidity of nearly ₹175 crore in the form of unutilised bank limits, cash surplus and marketable securities to withstand impact on cash flows in the near term. Financial risk profile is expected to remain robust with healthy annual cash accrual of ₹300-350 crore and low capital expenditure (capex) requirement (after deducting capex and dividend of around ₹300 crore).
Crisil noted an increase in pledge of promoter stake over 80 per cent due to debt at group level. “The increasing pledge of the stake has impacted financial flexibility of the company. However, the company management is in process of liquidating certain business segments to reduce the promoter level debt in the near term to reduce the pledge to below 20 per cent,” the report said.
Currently, the promoter group owns about 52.7 per cent stake in Emami Ltd. Of the total promoter holding, 71.58 per cent was pledged as on December 31, 2019.
In 2019, the promoters offloaded 20 per cent stake in Emami Ltd in two tranches. In February last year, 10 per cent was offloaded at ₹1,600 crore, while in June, another 10 per cent was offloaded at ₹1,230 crore.
Earlier this year, the promoters exited from the cement business by selling Emami Cement to Nuvoco Vistas Corp Ltd, a Nirma group company, for ₹5,500 crore.
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