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Himadri Chem to spend $400 mn on acquisitions

Himadri Chem to spend $400 mn on acquisitions
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First Published: Tue, Jan 05 2010. 09 24 PM IST

Phased approach: Himadri Chemicals CEO Anurag Choudhary says the firm will spend $175 mn in the first phase and $225 mn in the second.
Phased approach: Himadri Chemicals CEO Anurag Choudhary says the firm will spend $175 mn in the first phase and $225 mn in the second.
Updated: Tue, Jan 05 2010. 09 24 PM IST
Kolkata: India’s largest producer of coal tar pitch, Himadri Chemicals and Industries Ltd, which last week agreed to sell a 15.39% stake to Bain Capital India Investments for Rs252.4 crore, is looking to buy three overseas firms for around $400 million (Rs1,848 crore).
Phased approach: Himadri Chemicals CEO Anurag Choudhary says the firm will spend $175 mn in the first phase and $225 mn in the second.
“We are currently conducting due diligence of these firms, but these acquisitions may not materialize immediately,” chief executive officer Anurag Choudhary said.
Himadri Chemicals plans to fund the acquisitions using borrowed funds secured by the assets of the target companies, he said. “Our debt-equity ratio is 1:1 and we want to keep it there even as we expand.”
The firm, which also makes creosote oil, plans to spend an equal amount in the next four years to scale up production in India and build a coal tar distillation plant in China’s Shandong province.
Himadri Chemicals distils coal tar at four factories to produce coal tar pitch used in aluminium smelters, and creosote oil, used as furnace oil and feedstock for carbon black. It sources coal tar—a by-product of processing coal into metallurgical coke—from Indian steel plants.
Choudhary said firm will expand in phases. In the first phase, to be completed in 18-20 months, it will spend some $175 million. It would spend $225 million in the second phase.
By selling 6.31 million shares to Bain Capital India, Himadri Chemicals has “fully tied up” funds for the first phase of expansion in India and China.
“For the second phase of expansion, we may need to sell more shares, but we haven’t decided on it yet because by the time it starts, there will be substantial internal accruals too,” Choudhary added.
Himadri Chemicals is the biggest manufacturer of coal tar pitch in India, said Rajesh Agarwal, director of CD Equisearch Pvt. Ltd, a Kolkata-based brokerage. It produces 169,000 tonnes of coal tar pitch a year.
“It has around 70% market share; the rest is controlled by unorganized players. So effectively, it’s almost the lone player in this business,” Agarwal said. “Globally, there are very few players in this business.”
In keeping with Indian takeover laws, Bain Capital India is going to make an open offer for 20% additional equity of Himadri Chemicals at Rs400 apiece, Choudhary said.
But shareholders are unlikely to sell out.
Himadri Chemicals’ shares had shot up to Rs458 apiece after the deal with Bain Capital was announced on 31 December. The stock ended at Rs420 each on Tuesday on the Bombay Stock Exchange, down 2.8%, even as the Sensex index rose 0.7% to 17,686 points.
“Bain may not want to raise its stake in our company immediately,” Choudhary said.
A spokesperson for Bain Capital declined to comment.
“We are excited about having Himadri Chemicals as our first investment in India,” the private equity firm (PE) said in a statement on 3 January. Bain Capital manages over $65 billion in assets worldwide.
In June last year, Citigroup Venture Capital International, another PE firm, had acquired 14.26% in Himadri Chemicals by converting warrants at Rs426 per share. The market price then was around Rs230, according to Agarwal. Because of the share sale to Bain Capital, Citigroup’s stake in Himadri will get diluted to around 11%.
“Foreign investors have been buying into this company because its operating profit margin is huge—over 30%,” Agarwal said.
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First Published: Tue, Jan 05 2010. 09 24 PM IST