HYDERABAD: The Murugappa Group’s Coromandel International, India’s biggest private-sector Phosphatic fertiliser company, is in talks to buy key urea producer Nagarjuna Fertilizers and Chemicals in one of the largest such buyouts in the sector,
A successful deal, likely between Rs 3,000 crore and Rs 3,600 crore, will make Coromandel International the largest integrated player in India’s fertiliser sector, with substantial strengths in both complex fertilisers and urea.
The buyout of Hyderabad-based Nagarjuna (NFCL) will also allow Coromandel, part of Chennai’s Rs 29,500-crore Murugappa Group, extract production and marketing synergies from the existing manufacturing units located on the eastern seaboard. “The talks between Murugappa group and NFCL are currently at a preliminary stage,” said a top executive with a leading merchant banking firm.
“The negotiations weren’t seeing much progress for months owing to substantial disparities over valuations and expectations,” he said, seeking anonymity. India is the world’s second largest consumer of fertilisers after China, and locally produces about 80% of its urea needs and about half of its Phosphatic fertiliser requirements.
Coromandel International has manufacturing facilities at Kakinada and Visakhapatnam in Andhra Pradesh and at Ennore in Tamil Nadu. The KS Raju-headed NFCL, with its urea production facility located at Kakinada in Andhra Pradesh, posted a net loss of Rs 114 crore on sales of Rs 3,656 crore during the last fiscal to March 2016.
A senior NFCL executive, who also did not want to be named, said the negotiations were going on for a while.
“However, there has been no noteworthy progress to date as there have been differences over valuations, apart from certain hurdles pertaining to regulatory and institutional clearances for the deal to go through,
“The NFCL promoters were insisting on taking the negotiations ahead if the Murugappa group agreed to a valuation of at least 4-5 times its market capitalisation, which is at Rs 735 crore now. Going by this, the valuation being sought by NFCL promoters works out to between Rs 3,000 crore and Rs 3,600 crore, significantly higher than what the suitor is willing to pay,” said the same executive.
“Further, while Murugappa preferred a 100% stock swap deal, the NFCL promoters were keen on a cash component as well in the deal.” While Murugappa representatives denied holding talks with NFCL, the Raju-led company refused to comment.
“We are not in talks with NFCL,” Murugappa Group Chairman A Vellayan said in response to ET’s queries. A NFCL spokesperson said the company “does not, as a policy, comment on or respond to rumours.”
The buyout would enable Coromandel extract synergies embedded in manufacturing and distribution, according to analysts.
“As both Coromandel and NFCL have their production facilities located at Kakinada, and Coromandel also handles urea operations under government contracts through the Kakinada port in Andhra, the deal could provide greater synergies in manufacturing and marketing of both urea and complex fertilisers and drive cost efficiencies,” said a Mumbai-based brokerage analyst tracking the fertiliser sector.
NFCL, which underwent a composite and complex scheme of arrangement and amalgamation between Kakinada Fertilizers, Ikisan, Nagarjuna Fertilisers and Chemicals, and Nagarjuna Oil Refinery, saw its equity shares being frozen after the Sebi opposed the exemptions sought by the company for listing shares of certain entities without going in for a public issue.
However, the trading in shares commenced from June last year after Sebi agreed to relax certain conditions. The NFCL executive, who is quoted above, said: “The promoters had agreed to several commitments as a part of the composite scheme of arrangement and amalgamation, which includes reviving the financials of Nagarjuna Oil Refinery, apart from bringing in strategic investors.”