final report eva

8/8/2019 Final Report EVA

1/12

Mergers And

Acquisitions

Analysis EVA

GROUP MEMBERS

(Corporate Finance):

Amey Bhonslay

Swaty Sharma

Yashesh Sangani

Coromandel International

Acquires Ficom Organics Ltd.


2/12

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.


3/12

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.


4/12

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 .


5/12

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


6/12

Balance Sheet:

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7/12

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8/12

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10/12

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).


11/12

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


12/12

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.

final report eva

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