Hi Harsh - Fair point to raise.
I would like to judge Suprajit’s acquisitions in the recent past against 3 restraints - 1) the price paid 2) the size of the acquisition and 3) the patience to wait before striking a deal
Let’s look at 1) price restraint and 2) size restraint together
I do not think any of the acquisitions done by Suprajit posed a risk to change the capital structure of the company materially. The price paid was sensible and the size of the acquisition was under check. However, I admit Suprajit did QIP in 2016 which diluted ~ 5% of the equity.
Acquisition | Product | Date of Acquisition | EV | EV / EBIDTA | Cash on balance sheet at the time of acquisition |
---|---|---|---|---|---|
Stahlschmidt Cable Systems (SCS) | Control Cable | 09 Jun 2024 | 123 Cr | Loss making | 512 Cr |
Kongsberg Automotive | Control Cable | 28 Oct 2021 | 314 Cr | ~ 6 | 400 Cr |
Osram Chennai Halogen Bulb facility | Halogen Lamp | 10 Jul 2019 | ~ 25 Cr | - | |
Wescon controls | Control Cable | 09 Sep 2016 | 293 Cr | 8 | 160 Cr |
Phoenix lamps | Halogen lamp | 07 May 2015 | 61% stake from promoters at ~130 cr rest 39% was merged with Suprajit | ~ 6 | 80 Cr |
But I believe, Mankind and Eris are going after significantly larger acquisitions and because multiples in branded formulations are higher there is a larger funding gap. This can change the capital structure of the company materially
A | B | C | D |
---|---|---|---|
Mankind | Bharat Serums and Vaccines (BSV) | EV = 13,630 Cr.100% stake to be acquired | Cash on the book = 3700 Cr. Funding Gap ~ 9930 Cr |
Eris | Swiss Parenterals Ltd (SPL)+ Biocon Biologics | 51% stake for 637 Cr + 100% stake 1242 Cr | Cash on the book ( as on H1 2024 ) = 190 Cr. Funding gap ~ 1200 Cr |
Point 3) Patience is the interesting one
Suprajit was scouting for acquisition targets since 2012 before they finally acquired phoenix lamps in 2015. Actis (erstwhile promoter) were responsible for “diworsification” into CFL( Compact Fluorescent Lamps ) and looking to get out of the business. Suprajit at the time of acquisition paid Rs 89 / share as against prevailing market price of 110 / share for phoenix lamps
Konsberg Automotive attempted divestment for their control cables business back in 2016 as well. Suprajit was involved in the process but they decided to walk away because of valuations only to acquire same business in 2021 when opportunity came back with favourable valuations
Similarly Suprajit was interested in acquiring Stahlschmidt Cable Systems (SCS) and Ajith rai approached the promoter family back in 2014 - 15 but again deal did not work out. The opportunity arose when SCS went in bankruptcy in 2023
All these points make me believe that future acquisitions of Suprajit will be “sensible” and there are higher chances that they will go after large debt-funded deal or have significant equity dilution
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