It’s known that the Aditya Birla Group has been aggressive with acquisitions. And why not? Chairman Kumar Mangalam Birlaintends to double the group’s revenue to $65 billion (aroundRs 3 trillion) by 2015.
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On Monday, the group acquired Sweden-based Domsjö Fabriker AB for $340 million. Earlier this year, Columbian Chemicals Co. was acquired for $875 million.
While those two were outbound deals, last week Aditya Birla Chemicals (India) Ltd (ABCIL) acquired the chloro chemicals business of Kolkata-based Kanoria Chemicals and Industries Ltd (KCI) for Rs 830 crore.
Investors cheered the development and KCI’s stock rose by 20% to Rs 49.35 apiece on Monday, a day when the broader markets were in the red.
The chloro chemicals business includes production of caustic soda and chlorine. The deal value is about 2.7 times 2009-10 (FY10) revenue of the chloro-chemicals business. N.K. Nolkha, chief financial officer of KCI, said the deal is valued at 10 times FY10 Ebitda (earnings before interest, tax, depreciation and amortization) of the chloro chemicals business of the company. That does not look bad at all.
What does the deal give KCI? Lots of money for one. Nolkha said the firm would be left with cash of around Rs 350 crore after excluding the tax and taking care of the chloro chemicals business’ debt obligations.
KCI intends to use the funds realized from the deal to expand other existing businesses and seek opportunities in new and related areas through organic and inorganic growth. That would perhaps be essential, too, considering the fact that the chloro chemicals business accounted for the lion’s share of the company’s sales (72% in FY10).
What will be left with KCI after this deal? That would be the alco chemicals business, which includes ethanol production from molasses and formaldehyde from methanol, which is further synthesized into several products for industrial applications.
KCI would also have a debt of Rs 71 crore. The scrip should bask in the glory of the deal for some time and investors should watch out for future plans and then take a call.
ABCIL’s stock, too, rose by 3% to Rs 139 apiece. ABCIL’s total caustic soda capacity is expected to increase to 220,000 tonnes a year from 105,000 tonnes with this deal. The company, a subsidiary of Hindalco Industries Ltd, would finance the deal from internal accruals and borrowings. ABCIL gets KCI’s Renukoot facility, which includes chemical plants in an integrated township spread over 350 acres.
Graphic by Yogesh Kumar/Mint
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