Lohias of Indorama eye Kumar Mangalam Birla's fertiliser arm Indo Gulf for $500-600 million

Press Release (ePRNews.com) - PUNE, India - Feb 21, 2017 - After initiating the Rs 60,000 crore mega-merger between Grasim and the diversified Aditya Birla NuvoBSE 1.30 % and a potential alliance between Idea Cellular and Vodafone to create India’s largest telco, Kumar Mangalam Birla is taking a long hard look at his fertilizer operations.

Birla is in talks with Indian-born Indonesian billionaire Sri Prakash Lohia of Indorama Corporation to sell Indo GulfBSE 0.00 % Fertiliser, said four officials aware.

Petrochemicals powerhouse Indorama is among the world’s largest producer of polyester, synthetic rubber gloves, and resins used in plastic bottles. If successful this will mark Lohia’s entry into the Indian fertiliser space after last year’s petchem foray.

Birla’s fertiliser operations, Indo Gulf is a division of Aditya Birla Nuvo, a diversified conglomerate of the Aditya Birla Group which itself is in the middle of a mega-merger with Grasim Industries.

The decision to explore a divestment of Indo Gulf is not new, say old time Birla watchers and is part of a bigger portfolio restructuring to exit low-margin businesses in government-regulated sectors.

According to investment banking sources, the $41 billion telecom-to-cement conglomerate had already mandated HDFC Bank last year to scout for potential buyers. Earlier media reports suggested that Birlas had even explored a potential sale to Indian Farmers Fertiliser Cooperative Ltd (IFFCO) but most of these conversations fell through, largely on account of valuation mismatch.

Sources said the Birlas are looking at a valuation of around Rs 3300-Rs 4000 crores ($500-600 million) for the business.

An Aditya Birla Group (https://mnacritique.mergersindia.com/news/aditya-birla-re…) spokeswoman declined to comment on market speculation.

Mails sent to SP Lohia, chairman Indorama and his son Amit, vice chairman of Indorama Corporation (https://mnacritique.mergersindia.com/indorama-dhunseri-jo…) who operates out of Singapore did not generate a response till the time of going to press.

Indo Gulf is the 8th largest urea manufacturer in India with a manufacturing facility at Jagdishpur in Uttar Pradesh. The company positions itself as a ‘total agri-solutions provider’ offering a full range of Agri inputs – fertilisers, seeds, agrochemicals and specialties from sowing to harvesting. Birla Shaktiman Urea enjoys a market leadership position in Uttar Pradesh, Bihar, Jharkhand and West Bengal.

The domestic urea business is hamstrung by government regulations, price caps 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. 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.

In an earlier interview with ET, Birla had said that the idea with the fertiliser business is to sweat the asset. “Growth opportunity is limited in fertiliser. I think the fertiliser policy perhaps is not conducive to growth. We have a great fertiliser operation… by far, are the most efficient plant in the country, in the private sector… But there is no economic rationale for further investment,” he said during a July 2015 interaction.

“Even though the Birlas have been reluctant sellers always, the need to restructure the portfolio and unlock maximum value is far more acute now. The group’s key focus is now telecom,” said an old group watcher who is familiar with the ongoing discussions. “Both families know each other so they the conversations are bilateral in nature.”

Last August, Tatas sold their urea unit in Babrala, UP to Yara International for Rs 2670 crore, a rare case of foreign investment in the sector.

“Only those who have long-term vision will take a punt. Indorama has very large fertiliser operations in Nigeria and own significant potash reserves. They are looking to make big bets in India. Indo Gulf would offer them an opportunity to forward integrate,” said another official in the know.

One of the officials quoted above even said, Lohias may also buy out the residual fertiliser operations of Tata Chemicals but these could not be independently verified. Last year, Indorama Ventures and Dhunseri Petrochem formed a 50:50 joint venture to manufacture polyethylene terephthalate (PET) resins for domestic as well as international markets.

With roots in modest yarns business called Indorama Synthetics, the Lohias now helm a multinational petrochemicals empire. Indorama draws its name from its base in Indonesia and the Hindu deity Lord Rama, its operations, together with Thailand-listed flagship Indorama Ventures, today spans the globe with over 57 factories in 21 countries. Sri Prakash Lohia shuttles between London, where his brother in law Lakshmi Mittal is based out of, and Jakarta.

Group company, Indorama Eleme Fertilisers, and Chemicals is also the largest producer of phosphoric acid and phosphate fertilizers in Sub-Saharan Africa and also is the largest producer of ammonia and urea in West Africa. Its plant in Nigeria is one of the largest single line plants in the world with a production capacity of 4,000 tons of urea per day. Ammonia is an intermediate product used to make urea. Urea is a nitrogenous fertilizer and the most widely used type of fertilizer in the agricultural sector.

The Lohias entered Africa in 2006 when they bought a 75% stake in Indorama Eleme Petrochemical for $225 million from the federal government of Nigeria. In 2013, they upped their game with an additional $1.2 billion investment to build a new fertilizer complex at Eleme’s Port Harcourt site. This was followed by the acquisition of 66% of Industries Chimiques du Sénégal, a partly state-owned fertilizer unit in Senegal. Amit Lohia spearheads the African operations.

Source : M&A Critique
Business Info :
M&A Critique

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