The parent company RHI Magnesita’s CEO Mr. Stefan Borgas did a concall with their investors where he gave additional insights on the Dalmia acquisition. A summary is given below:
• The acquisition gives us access to the cement sector where we are very much underrepresented until now (in India).
• It gives us a very well balanced production network in a market where transportation cost is a big consideration. So, merging the two networks will be very beneficial.
• Dalmia plants are utilised just 50%, so with this acquisition we have pre-empted capex which otherwise we would have had to incur.
• Dalmia Bharat Group & the Dalmia Family will become 14 % shareholders, so we now have a strong Indian partner in the business.
• We expect the transaction to close by first quarter of 2023, mostly January ‘23 itself if everything goes well.
• We can increase EBIDTA of the acquired business by at least 50% within a year i.e., 50% over FY23 EBIDTA. The increase will come from market growth (i.e. higher revenue) as well as from the opportunity to improve the operations of the RHI Magnesita Group (i.e. cost synergies)
• Cost benefits come from transportation & network synergies, also from shutting down production lines in some plants and from better procurement bargains. All of those will be realised during calendar 2023 and that will give us the 50% higher EBIDTA.
• The revenue synergies are on top of this but are quite significant. They come from complementary product lines. For example, RHIM India does not have significant cement facilities, so most of the cement business is imported. But now we can shift our know-how to Dalmia facilities and bring new technologies into India and give Indian customers access to products they could not access before. We are exploring shifting some production from Europe to India – looking at it product to product. Nothing is decided as yet but that is the direction.
• India is the bright spot on the refractory horizon. In Europe, the demand slowdown in both steel and cement has worsened in the last 6-8 weeks, in the U.S. de-stocking is happening, in China the government is projecting a 40-60 million tonne lower steel production next year (around 33% lower), in Vietnam producers have shut down a large portion of their steel capacity for the foreseeable future. I have been in India last one week and talking to several of our customers. India growth next year should be 5 to 7 % even with parts of the world coming into recession. So, India is relatively resilient though not totally immune.
• After this acquisition, we will have a little higher than 30% market share in India. Next, we have to look at the structure of the business and on the raw material side.
(Disc.: Invested)
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