Improving global asset footprint
Sudarshan Chemical Industries Limited (SCIL) has entered into a definitive agreement whereby its wholly owned subsidiary (WOS), Sudarshan Europe BV, shall acquire the global pigment business operations of the Heubach Group of Germany. Having a global scale is essential for success in the pigment business. It ensures sustainable growth, cheaper feedstock and, more importantly, exposure to cutting-edge technologies. We believe that the fit between Heubach and SClL is perfect. The combination of cutting-edge technologies, a diverse product portfolio catering to a wide range of customer needs, and Heubach’s expansive global production and service network uniquely position the company to serve a worldwide customer base in coatings, plastics, inks, and specialty applications. This comprehensive offering enables SCIL to deliver industry-leading products and services with a global reach. In the last four years, global players shifted away from the pigment business which would be a tailwind for the Indian pigment manufacturer. We upgrade the stock to ADD from REDUCE with a TP of INR1,161/sh.
The acquisition will consolidate SCIL’s position
Heubach is the second largest pigment manufacturer with a product basket consisting of organic pigments, inorganic pigments, dyes, dispersions and anticorrosion pigments. Post-acquisition, SCIL will have a comprehensive pigment portfolio of high-quality products and a strong presence in major markets including Europe and the Americas. It will enhance SCIL’s product portfolio, giving it deeper access to customers and a diversified asset footprint across 17 sites globally. SCIL is enhancing its product portfolio through this acquisition. It is in a sweet spot to capitalise on this opportunity by offering products comparable to global players at a lower cost (Refer to Exhibit No.1).
Acquiring other than India assets at ~INR11.4bn
SCIL shall acquire assets of Heubach Global for a total consideration of Euro 127.5mn (~INR 11.8bn) and an infusion of Euro 100mn (~INR9.3bn) towards working capital, restructuring and meeting regulatory requirements (Exhibit No. 2). We estimate that the value of Heubach Global’s stake in the Indian company Heubach Colorant is ~INR 6.3bn. Additionally, as per regulatory requirements, the company has to make an open offer to acquire a 26% stake in Heubatch Colorants India. At today’s valuation, it will cost ~INR 3.3bn. We estimate that SCIL is acquiring infrastructure across continents, customer base, marketing rights, and technology of Heubach Global excluding Indian assets at ~INR11.4bn, which we believe is a reasonable value.
Leave a Reply