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Mergers And
Acquisitions
Analysis EVA
GROUP MEMBERS
(Corporate Finance):
Amey Bhonslay
Swaty Sharma
Yashesh Sangani
Coromandel International
Acquires Ficom Organics Ltd.
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Coromandel Ineternational Ltd Acquires Ficom Fertilizers Ltd.
Coromande
International Limited is in the businessse
ments ofFertilizers,S ecialty Nutrients, Crop
Protection and Retail. It manufactures a wide range of fertilizers and markets around 2.9 million tons
making it a leader in its addressable markets and thesecond largest phosphatic fertilizer player in
India.
In its Endeavour to be a complete plant nutrition solutions company, Coromandel has also
introduced a range ofSpecialty Nutrient products including OrganicFertilizers.
The Crop Protection business produces insecticides, fungicides and herbicides and markets these
products in India and across the globe.
Coromandel has also ventured into the retail businesssetting up more than 425 rural retail centers
in the agri and lifestylesegments. The Companyclocked a turnover of Rs.6527crore in 2009-10 (USD
1.44 billion as on March 31, 2010). Coromandel was ranked among the top 20 best companies to
work for by Business Today and was also voted as one of the ten greenest companies in India by
TERI, reflecting its commitment to the environment and society. Coromandel is a part of the
Rs.13,617crores (USD 3.03 billion as on March 31, 2010) Murugappa Group.
Vision:
To be leader in the phosphatic fertilizer industry producing high quality fertilizers at low cost and
giving satisfaction to all stake holders
Mission:
To enhance the prosperity of farmer through thesupply of quality farm inputs and related services
to ensure value for money.
Products and Services
Coromandel has multi-locational production facilities and manufactures & markets a wide range of
Phosphatic Fertilisers, Crop Protection Products, Speciality Nutrients like Sulphur Pastelles, Water
SolubleFertilisers, Micro Nutrients and OrganicFertilisers. The Companyexports its Crop Protection
products to countries across the globe. Coromandel also provides agri input solutions to the farmers
and offers life-style products through its rural retail centers. The Company is managed bycompetent
and committed professionals and is known for fostering a climate of high performance and
continuous improvement.
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About Ficom Organics Ltd:
The operations of Ficom include manufacture and sale of agrochemicals of technical grade and
pesticides. Rasilah is engaged in the business of investment and finance.They provide malathion,
chlorpyriphos, quinalphos, temephos, phorate and ethion.
During the year 2005-06 the performance of the company was affected mainly due to drop in
exports. Theexports decreased by 25.79% due to reduced Malathion demand in African countries
for Locust control. The export turnover constituted about 52.45% of the sales turnover of the
company for the year. Further delay and erratic monsoon conditions in the north zone had an
adverse impact on thesales during theyear.
Thecompany also could not achieve theestimated sales due to paucity of working capital and non-
receipt of Government approval for thecommencement of production of CPP (technical). The raw
material prices also had gone up due to increase in thecrude oil prices.
All these factors had exerted pressure on operating margin which ultimately resulted in operating
loss for the year. During the year, the company negotiated with IDBI-Stressed Assets Stabilization
Fund and settled the outstanding dues under onetimesettlement,consequent to which a sum of Rs.
5.97 cr relating to principal and interest was written back.
The Company had provided a sum of Rs. 10.41 cr towards impairment of fixed assets in accordance
with the accounting standards prescribed in this regard. However optimum utilization of resources
and effectivecost control measures taken by the management helped in achieving the performance
which enabled thecompany to reduce its losses. Thecompany achieved export turnover of Rs. 26.30
cr during theyear as against Rs. 35.44 cr for the previousyear.
These factors madeFicom a good target for other realted companies to achieve an inorganic growth
via merger and acquisition.
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The Deal:
Amalgamation of Ficom Organics Limited and its wholly owned subsidiary company Rasilah
Investments Limited with Coromandel Fertilizers Limited.
Coromandel has acquired 50.2% of theequityshares of M/s. Ficom Organics Limited(Ficom)
During the year 2006-07, the Coromandel acquired Ficom Organics Limited, a technical grade
Pesticides manufacturing Company based at Ankaleswar, Gujarat and the same has been merged
with CFL effective April 1, 2006 .
The Scheme of Amalgamation ofFicom Organics Limited (Ficom) and Rasilah Investments Limited
with the Company was approved by the Hon'ble High Courts of Andhra Pradesh and Mumbai.
Pursuant to theScheme of Amalgamation, 8,31,981 equityshares were issued and allotted to the
shareholders of Ficom Organics Limited, on a fully paid up basis, in the ratio of 3 (three) equity
shares of Rs.2/- each of Coromandel Company for every 11 (eleven) equityshares of Rs.10/- each of
Ficom. Consequent to this, the paid up capital of Coromandel Company went up from Rs 25.41 crore
to Rs 25.57 crore.
The Amalgamation has been accounted for under the 'Purchase Method' as prescribed by
Accounting Standard 14, "Accounting for Amalgamations", issued by the Institute of Chartered
Accountants of India. In accordance with theScheme, the assets and liabilities ofFicom and Rasilah
were taken over at their fair values determined by an independent valuer as on April 1, 2006 and Rs.
852.88 lacs being the excess of the fair value of the net assets over theconsideration payable has
been credited to the Capital Reserve in the books of the Company.
As per the Scheme, 3,140,567 Equity Shares of Rs. 10/- each of Ficom held by the Company and
91,000 EquityShares of Rs. 10/- each of Rasilah held byFicom,stand cancelled.
Financing of Deal:
The term loans from banks, taken over pursuant to the amalgamation of Ficom Organics Limited
with the Company, were secured by way of equitable mortgage of the Company's immovable
properties, present and future,situated at Ankleshwar, (unit) and hypothecation of whole of the
units, movable properties .
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Benefits to Coromandel:
With the acquisition ofFicom Organics, the Company has a wide range of products in the Pesticides
business and has madeentry into public health businesssegment. The Company has also developed
a strong dedicated team of marketing professionals for the Pesticides business. It discontinued some
of the products ofFicom that were not making profit. They increased the margins of products where
they thought there is a potential to grow and increased the production ofsome of the products by
20-30%.
Coromandel spend around Rs 10-20 cr during F
07 for revamping Ficom's manufacturing unit by
setting up pesticides formulation unit near Jammu. They also tied up with CFL South African major
Foskor for raw material procurement
This Amalgamation will enable the Company to consolidate the Pesticides business and reap the
synergy benefits from theconsolidation.
Effect On Share Prices:
Soon after the merger deal was announced Coromandel Fertilisers jumped 4% to Rs 81. A huge
45,071 shareschanged hands in thecounter on BSE. Coromandel Fertilisersscrip witnessed a solid
surge in February 2006 beforecooling off in March 2006. From a low of Rs 67.35 on 10 February, it
spurted to Rs 85.75 on 22 February 2006. It had cooled off to Rs 77.85 by 16 March 2006.
Also, FICOM Organics jumped 5% to Rs 15.55 the maximum permissible level of the day. There
were outstanding buy orders for 4.1 lakh shares in FICOM at the 5% upper limit.
TheFICOM scrip witnessed a solid surge in the run up to the announcement. From a low of Rs 11.52
on 22 Feb 2006, thestock spurted to Rs 14.81 on 16 March 2006.
0
20
40
60
80
100
120
10-Feb 10-Mar 10-Apr 10-May 10-Jun
Coromandel
Ficom
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Balance Sheet:
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Profit and Loss:
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Capital:
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Ratio:
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Ratio Analysis
Coromandel has been able to keep its basic Expense ratios like Employee Cost to Revenue,SAE to Revenue below the industry average showing the management has been able to
synchronize the workings ofcompanyefficiently by keeping thecosts low.
The Current ratio is mainly used to give an idea of thecompany's ability to pay back itsshort-term liabilities (debt and payables) with itsshort-term assets (cash, inventory, receivables).
Thecompany has been able to improve itscurrent ratio consistently post-merger and is thus
able to manage itsshort term liabilities and cash moreefficiently.
The Asset turnover ratio of Coromandel has been low in year subsequent to the merger dueto largecash balances in their books which has rose to theextent of almost 19% of the total
assets. However, the fixed assed turnover ratio hasconstantly improved along with increase
in fixed assets which reflects thecompanieseffectiveness in using the investment in fixed
assets to generate revenues.
The Profitability ratios have increased marginally over theyears post years which is one ofthe highest in the Industry.
The EPS and theBook value of Coromandel are the highest in the industry and it increasedexponentially post-merger due to increase in profits and revenues due to investment in
Capex and increasing itscapacities. The Company achieved a sale volume of 21.62 lakh MT
(including 1.19 Lakh MT of imported DAP and 0.55 lakh MT of imported MOP).
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EVA:
EVAAnal
sis
The EVA Post merger has been positive throughout and has increased exponentially in the post-
merger years of 2008, 09, 10. However the EVA has been reduced to Rs. 8.08 crs. from Rs. 33.23 crs.
in theyear of merger. The reason for this is increase in current assets (mostly RM, WIP and Stores
and Spares) which increased from Rs. 361 crs to Rs. 702.8 crs. The positivity of the Eva has increasedand for checking this, I have taken ratio of Eva to nopat as the indicator.
Post merger:
In theyear of merger, the EVA of thecompany has increased exponentially due to increase in Nopat
which grew by around 35% over the previous year. Also the key expense ratios have remained
almost stable over theyears post-merger thus further helping the EVA to increase. Thecompany
hasconsistently increased long term debt following post-merger. The long term debt increased by
30%, 90% and 65% in the years 2007, 2008 and 2009 respectively. It was used for new initiatives
including projects taken up in different fertilizer units of the Company to increase the instantaneous
capacity and productivity werecompleted during theyear. Thiscan be attributed to operations in
Jammu which werestabilized and production in Ranipet and Thane plants recorded new highs.
The Company also started marketing a wide range ofspecialty nutrient products through the retail
trade across various States in the Country. A new business model was created to procure, pack,
manufacture, promote and market high value; low volumespecialties all over India post the merger.
This also added to overall turnover as the contribution of the Specialty Nutrients business has
achieved significant growth in the past few years.
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
N
PAT 8 .79 73.98 78.9 -2.95 -2.71 -13.05 106. 8 2 5. 9 523.76 503.93
WACC 6.2 % 5.51% 7.5 % 9. 2% 6.25% 10.38% 6. 9% 7.76% 6.5 % 7.38%
INVESTE
CAPITA 720.55 7 0.07 939. 1 56.6 59.20 38.60 1,132.7 1,919.78 2,926.51 3,438.25
EVA 39.80 33.23 8.08 -8.28 -6.41 -17.05 32.93 96.59 332.29 250.12
EVA
NoPat 46.94% 44.92% 10.23% 280.89% 236.47% 130.73% 30.93% 39.35% 63.44% 49.63%
PRE-Coromandel PostPRE- icom
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Conclusion:
Post-merger thecompany is generating a positive EVA from theyear 2007 and has been positive and
following an increasing trend till last available data. Also post-merger the expense ratios have
increased marginally as against PAT which has grown at 46.87%, 108.22% and 136.64% and 2007,
2008 and 2009 respectively. This also highlights the managements role in keeping thecosts under
control while increasing the revenue post-merger. Also the merger has given the company the
advantage of the geographical expansion and achieve it somesort of integrated business model.
Thus wecan say that the deal in all was a success.