Aditya Birla Group in talks with IFFCO to sell fertilizer arm

Aditya Birla Group has been looking to sell Indo Gulf Fertilisers for several years, as part of a strategy to exit low-margin businesses in govt-regulated sectors


Aditya Birla chairman Kumar Mangalam Birla. Indo Gulf Fertilisers is a subsidiary of Aditya Birla Nuvo which manufactures and markets urea, agricultural seeds and agrochemicals. Photo: Abhijit Bhatlekar/Mint
Aditya Birla chairman Kumar Mangalam Birla. Indo Gulf Fertilisers is a subsidiary of Aditya Birla Nuvo which manufactures and markets urea, agricultural seeds and agrochemicals. Photo: Abhijit Bhatlekar/Mint

Mumbai: The Aditya Birla Group is again looking to exit its fertilizer business and has begun preliminary talks with Indian Farmers Fertiliser Cooperative Ltd (IFFCO) about a potential sale, two people familiar with the development said on condition of anonymity.

A spokesperson for the group declined comment on “market speculation”. A spokesperson for IFFCO denied that the company is in talks with the Aditya Birla group.

The group's fertilizer business is managed by Indo Gulf Fertilisers Ltd, a subsidiary of Aditya Birla Nuvo Ltd, which manufactures and markets urea, agricultural seeds and agrochemicals. 

The Aditya Birla Group has been looking to sell the fertilizer business for several years, as part of a broader strategy to exit low-margin businesses in government-regulated sectors. The two people cited in the first instance said the talks with IFFCO are the group’s third attempt in recent years to exit the business.

Previous discussions made no headway due to a mismatch over valuation, one of the two said.

In August, Business Standard reported that the Aditya Birla Group had revived plans to exit the fertilizer business.

"The talks have again gained momentum after the sale of Tata Chemicals’ urea business to Yara India for Rs2,670 crore in August this year,” added the second person, who also did not want to be identified.

Yara International ASA agreed to buy Tata Chemicals Ltd’s Babrala urea plant and distribution business in Uttar Pradesh for $400 million.

Interestingly, IFFCO was also one of the suitors for Tata Chemicals' urea business but was not willing to pay the price demanded by the seller, the first person said.

Much like the Aditya Birla Group, the Tata group, too, had given plans to sell its urea business last year on account of poor response.

"The Aditya Birla Group is keen to complete the transaction before the impending merger of Aditya Birla Nuvo with Grasim Industries and has set an internal deadline of September 2017 to conclude the deal," the second person said. 

The urea business in India is plagued by issues related to pricing, unpaid subsidies, lack of agricultural reform and unavailability of gas to run plants. Some subsidy payments are delayed by up to six months, forcing companies to resort to short-term borrowings for working capital, said analysts.

Interest costs, however, do not form a part of the subsidy reimbursement and are borne by fertilizer companies.

In 2015-16, Indo Gulf Fertilisers reported earnings before interest, taxes, depreciation and amortization (Ebitda) of Rs209 crore on revenue of Rs2,498 crore, compared with Ebitda of Rs148 crore on revenue of Rs2,557 crore in FY15.

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