Need to look at combined worth of BASF, Ciba

Need to look at combined worth of BASF, Ciba
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First Published: Mon, Oct 19 2009. 11 33 PM IST

Updated: Mon, Oct 19 2009. 11 33 PM IST
Both BASF India Ltd and Ciba India Ltd make chemicals and operate in the same sector, but their financial performances in the September quarter were very different.
Ciba had a bad quarter, with sales falling by 21% and operating profit falling by as much as 80%. BASF’s sales increased by 14% during the three months ended September and profit rose by 24%.
However, Ciba’s core specialty chemicals business saw only a 10% dip in sales to Rs106.6 crore, while revenues from the so-called others segment fell by 78% to Rs2.7 crore. This segment comprises exports and contract manufacturing revenues.
Due to a global acquisition by BASF AG of Ciba Holding Inc., Ciba India is being merged with BASF India. Since the restructuring will affect performance in the short term, it makes more sense to look at Ciba and BASF’s collective performance. The resulting picture is much better.
Combined sales increased by 3.3% to Rs477 crore year-on-year. Operating profit margin fell by 170 basis points to 12.3%, chiefly due to a sharp fall in Ciba’s operating profits. One basis point is equal to one-hundredth of a percentage point.
During the quarter, Ciba stopped production at its leased out Goa plant. It also paid Rs9 crore as employee separation costs and Rs1.7 crore towards other closure-related costs. While it incurred these costs in this quarter, it will also get Rs13.5 crore for selling immoveable assets in that plant at a future date.
The collective profit before tax before exceptional items is down by 13.5%, with an increase in BASF’s profit offsetting the sharp drop in Ciba’s profit.
While BASF’s performance was good, a poor performance from Ciba also affects it, as investors are valuing the two as one company, due to the ongoing merger.
In about a month’s time, Ciba’s share price had gained 26% due to the merger, but fell by 3.7% on 17 October after the results were announced. BASF shares had gained about 32% in a month, but its price fell by 2.4% on the same date.
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First Published: Mon, Oct 19 2009. 11 33 PM IST