Mumbai: The world’s third largest generics agrochemicals maker, Mumbai-based United Phosphorus Ltd (UPL), is seen as a strong contender to buy a 63% stake in Gharda Chemicals Ltd that’s up for sale.
Gharda Chemicals’ founder and long-serving chairman and managing director Keki H. Gharda has decided to divest his stake to pursue research-oriented projects by transferring the proceeds of the proposed sale to a new family trust—Aban and Keki Gharda Memorial Foundation.
“We are open to considering (an acquisition), but we are not talking directly to Mr Gharda,” UPL chairman Rajju Shroff told Mint.
Shroff said that investment bankers from two firms had approached UPL on Gharda and UPL had in turn indicated a price it was willing to pay for the stake. He, however, declined to elaborate.
Growth strategy: United Phosphorus chairman Rajju Shroff. The firm will gain pricing power in India and abroad if it acquires Gharda. Ashesh Shah / Mint
UPL, which has grown into a company with annual sales of Rs6,500 crore through a combination of domestic and overseas acquisitions, and Gharda Chemicals, with sales of Rs952 crore, make crop protection products and compete in both domestic and foreign markets.
Gharda said in an interview last Thursday that he expected the proposed sale of his stake to take place in two to three months.
“Several domestic and multinational companies who operate in the same space have shown interest in my company, ” he said.
But he declined to name the potential contenders for acquiring the business that he built over a period of three decades.
A bulk of the proceeds from the proposed sale would be used for the research-oriented projects and for philanthropic activities.
Gharda’s model for a trust to fund research-based activities is similar to that of the Burroughs Wellcome Fund, an independent foundation set up by William Creasy, the head of Burroughs Wellcome’s US subsidiary, to advance biomedical sciences by supporting research and other scientific and educational activities.
A veteran researcher and entrepreneur in chemicals and the crop-protection business, Gharda wants to take forward his innovations in phosphates and steel which, according to him, are capable of reforming the way these businesses are run today in terms of cost and technology.
For this, he is planning to form a new company, Gharda Advanced Technology Ltd, under the trust.
Gharda expects an enterprise valuation of Rs2,500-3,000 crore for the company that makes dyestuffs, pesticides, veterinary drugs and polymers for the local as well as export markets. It had of late ventured into high performance pigments, or HPP, as a single point source of a wide range of pigments of various chemical classes.
However, the valuation could be in multiples of the annual net profit. Last year was a good year for agro-chemical companies such as UPL and Gharda Chemical. According to Keki Gharda, the unlisted Gharda Chemical had a net profit of Rs60 crore in the year ended March.
The other company in India competing in the crop protection segment is Rallis India Ltd, a Tata group company. The Godrej family, which owns Godrej Industries Ltd, is said to have a stake of about 7% in Gharda Chemicals.
UPL would gain pricing power in India and abroad if it acquires Gharda.
A recent instance of it was provided by its acquisition of a Gharda herbicide that competed against UPL’s product, Devrinol-napropamide, in the European market.
UPL used to sell 1,000 tonnes of the herbicide in Europe, while Gharda used to sell about 50 tonnes. The presence of Gharda in the market meant that pricing was kept under a leash.
After UPL acquired Gharda’s rights to the product, it raised the price by about 10%, which was comfortably absorbed by European customers.
In the past, UPL has made several acquisitions in India and abroad. Rohit Sanghavi of Prime Securities, in a 15 July report on UPL, said: “The company has gained valuable experience and expertise in acquiring and successfully integrating its over 20 acquisitions; this expertise is extremely important in an industry where consolidation is expected to remain a significant driver of growth for companies.”
“The company enjoys several cost advantages by manufacturing various agrochemicals in India; further its strong distribution network enables it to export its products around the world,” Sanghavi added.
Gharda also enjoys cost advantages, but on a smaller scale. Established in 1967, Gharda Chemicals has four manufacturing units located in western India.
“UPL is the only Indian player on the global generics opportunity in crop protection products. It has focused on the generics opportunity in the regulated markets of the US and Europe, and has achieved success over the past decade,” said a 23 July research report on UPL by analysts Prashant Nair and Akshay Rai of Citigroup Global Markets Inc.
“Apart from fully integrated manufacturing facilities, UPL also has strong distribution infrastructure across its targeted markets. UPL’s growth strategy is built around filing its own registrations and acquiring tail-end brands of global majors in regulated markets. With 80% of its revenue coming from global markets and a strong direct presence in the targeted markets, UPL has emerged as the third largest generics company in the world.”