Chennai: Fertilizer and pesticide maker Coromandel Fertilisers Ltd, a part of the Rs15,646-crore Murugappa Group, is in talks to invest Rs3,000-4,000 crore to set up a urea and ammonia manufacturing plant in a West Asian country, the details of which will be finalized close to December.
“We will become self-sufficient. We will capture the value from that, which we are not doing today,” Arunachalam Vellayan, vice-chairman of the Chennai-based conglomerate, told Mint.
While Coromandel may fund its investment through a combination of company earnings and debt, its promoters may also consider diluting their equity stake to raise more money. “Typically, these projects have a debt-equity ratio of 2:1,” Vellayan said.
As of 31 March, the promoters held 64.25% of Coromandel Fertilisers, according to data on the Bombay Stock Exchange (BSE) website.
The company, which has eight manufacturing facilities across the country, is a subsidiary of Murugappa Group’s sugar producing unit, EID Parry (India) Ltd. It contributed about 60% of the group’s total sales in fiscal 2009, and nearly 40% of profit.
Coromandel Fertilisers is probably following the footsteps of Oman India Fertiliser Co. (Omifco), an ammonia and urea maker, said Satish Mishra, an analyst at Mumbai-based equity research firm Pinc Research.
Omifco, a joint venture between Oman Oil Co., Indian Farmers Fertiliser Cooperative Ltd and Krishak Bharati Cooperative Ltd, was set up in the West Asian country amid a shortage of natural gas, a key raw material, in India.
“It probably will be a similar set-up,” Mishra said about Coromandel Fertilisers’ West Asia investments plan. “On a macro level, it is a good move.”
Setting up a urea and ammonia plant can take at least three-four years and capital costs are estimated to be around Rs39,000 per tonne of capacity being set up, the analyst, who has a buy rating on the fertilizer company, said.
The family-owned group has 29 registered companies, of which seven are listed, and has business interests including fertilizer, engineering, finance and sugar.
West Asian countries have recently seen investments slow to a trickle owing to the global financial crisis. Vellayan said, “…they (West Asian countries) are more thirsty for investment with a buy-back from a financially sound company… Otherwise you set up this white elephant there and you don’t buy, they get stuck.”
He refused to divulge specific details about the proposed factory’s location and capacity. He said the location and investment would depend on the natural gas allocation.
Coromandel currently procures urea from suppliers in West Asia, Russia and China while it buys 450,000-500,000 tonnes of ammonia through a Japanese company, Mitsui and Co. Ltd.
In 2006, the company had set up a joint venture in the North African country of Tunisia for manufacturing the raw material phosphoric acid at an estimated cost of $180 million (Rs843 crore). In the previous year, Coromandel Fertilisers picked up a 2.5% equity stake in a South African company, Foskor Ltd, for sourcing phosphate fertilizer input.
“If you take the fertilizers sector, our input costs in terms of rock, sulphur and phosphoric acid, on an average, (are) more competitive than the rest of the industry. And the reason is we have long-term tie-ups with people in South Africa and Tunisia. That gives us an advantage,” said Vellayan.
Coromandel Fertilisers is looking to reduce its revenue dependence on the sales of fertilizers by expanding its range of offerings to include pesticides, micronutrients, water-soluble products and retail. Currently, the fertilizers business represents about 70% of the company’s total sales and it is looking to reduce this to around 50% in the next three-five years.
The farm inputs manufacturer ended the last financial year with net sales of Rs9,374.98 crore and net profit of Rs559.5 crore, up from sales of Rs3,757.34 crore and profit of Rs210.10 crore in the previous year.
The company’s share price has climbed some 90% so far this year. On Tuesday, the shares fell 6% to end at Rs175.70 on the BSE, on a day the benchmark Sensex slipped some 2% to 13,589.23 points.