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The Economic Times

Title : Birlas in Talks to Sell Fertiliser Co to Indorama
Author : Arijit Barman
Location :
Mumbai
Article Date : 02/21/2017

AB Group looking Rs 3,300-4,000 cr at valuation for Indo Gulf Fertilisers

After initiating the Rs 60,000-crore mega merger bet` ween 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 unit 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 petchem foray .

An Aditya Birla Group spokeswoman declined to comment on market speculation. Mails sent to
Indorama chairman SP Lohia and his son and V-C Amit Lohia, who operates out of Singapore, did
not generate a response till the time of going to press.

The decision to explore divest ment of Indo Gulf is not new, say old-time Birla watchers and is part of
a 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 Fertiliser Cooperative Ltd (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 urea manufacturer in India with a plant at Jagdishpur in 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 enjoys a market leadership position in Uttar Pradesh, 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.

Interest costs, however, do not form a part of the subsidy reimbursement and are borne by fertiliser
companies.

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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.

In an earlier interview with ET, Birla had said that the idea with the fertiliser business is to sweat the
asset.

Growth opportunity is limited in ferti liser. I think the ferti liser policy perhaps is not conducive to
growth. We have a great fertiliser operation... by far, the most efficient plant in the country in the
private sector... But there is no economic rationale for further invest ment, he said during the July
2015 interaction.

Even though the Birlas have been reluctant sellers always, the need to restructure the portfolio and
unlock maximum va lue 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.

Both families know each other so the conversations are bilateral in nature.

Last August, Tatas sold their urea unit in Babrala, UP, to Yara International for Rs 2,670 crore, a rare
case of foreign investment in the sector.

One of the officials quoted above said Lohias may also buy out the residual fertiliser operations of
Tata Chemicals but these could not be independently verified.

Last year, Indorama Ventures and Dhunseri Petrochem formed a 50:50 joint venture to manufacture
polyethylene terephthalate (PET) resins for domestic as well as international markets.

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.

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