AB Group in Talks to Sell Indo Gulf to Indorama
Group looking at valuation of .₹ 3,300-4,000 crore for Indo Gulf Fertilisers; experts say move in line with plan to exit low-margin businesses
Mumbai: After initiating the .₹ 60,000-crore mega merger between Grasim and Aditya Birla Nuvo 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 fertiliser operations.
The Aditya Birla Group is in talks with India-born Indonesian billionaire Sri Prakash Lohia of Indorama Corporation to sell Indo Gulf Fertilisers, a division of Aditya Birla Nuvo, four officials aware of the situation said.
Petrochemicals powerhouse Indorama is among the world’s largest producers of polyester, synthetic rubber gloves and resins used in plastic bottles. If successful, this will mark Lohias’ entry into the Indian fertiliser space after last year’s petrochem foray with a 50:50 joint venture with Dhunseri Petrochem to make PET resins.
An Aditya Birla Group spokeswoman declined to comment on market speculation. Mails sent to Indorama chairman SP Lohia and his son and vice-chairman Amit Lohia, who operates out of Singapore, did not generate a response till the time of going to press Monday.
The decision to explore 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 mandated HDFC Bank last year to scout for potential buyers. Previous media reports suggested that Birlas had even explored a potential sale to Indian Farmers Fertili- Deal Buzz producers of polyester, synthetic rubber gloves and resins used in plastic bottles
ser Cooperative (IFFCO) but most of these talks fell through, largely on account of valuation mismatch. Sources said the AB Group is looking at a valuation of around .₹ 3,300-4,000 crore ($500-600 million) for the business.
Indo Gulf is the eighth-largest ur-
ea manufacturer in India with a plant at Jagdishpur, 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 en- joys market leadership in UP, 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.
In 2015-16, Indo Gulf Fertilisers reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of ₹ 209 crore on revenue of ₹ 2,498 crore, compared with Ebitda of ₹ 148 crore on revenue of ₹ 2,557 crore in FY15.
“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.
“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.
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.