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Aditya Birla Chemicals acquired a unit of Kanoria Chemicals & Industries for Rs 8,300 crore to boost its chloro-chemicals division. In an exclusive interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee, RV Kanoria chairman and managing director of Kanoria Chemicals says that the company is looking to deploy the money from the deal for growth in new businesses. “The company is set to look at organic and inorganic opportunities,” he says.
Sharing further details on the fund utilization from the deal, he says, “The company will be left with Rs 350 crore post taxes and retiring of debt. The cash on balance sheet is to be at Rs 375 crore while cash on per share is seen at Rs 70.” He also expects the existing business to pick up FY13 onwards and the margins to improve going forward. The company is unlikely to pay dividends.
Below is a verbatim transcript of RV Kanoria's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: You have sold the chloro-chemicals division and not a stake in the company, the listed entity there will be no open offer. What do you intend to do with this Rs 830 crore in terms of returning some money to your minority shareholders from the proceeds?
A: Out of the Rs 830 crore there is a tax from the slump sale. We will be retiring all the debt related to this division. We will be left with Rs 350 crore to Rs 375 crore. As far as the shareholders are concerned, there is going to be tremendous capital appreciation in our shares because of monetization of the value which was actually locked into this division.
Fundamentally, we are looking at deploying this money for growth and for diversifying into new businesses. The biggest challenge is going to be look at both inorganic as well as organic growth within the company.
Q: Why would there be an appreciation of the stock because of the monetization of this deal? It doesn’t have anything to do with the listed stock and for the entity that remains, it actually seems to be a lower margin business, the revenue profile of course is lower because it doesn’t contribute that much at this point.
A: The cash on the balance sheet will be around Rs 350 crore to Rs 375 crore. If you look at approximately Rs 5 crore outstanding shares, Rs 70 a share would just be value of the cash on the balance sheet notwithstanding the other businesses.
Q: Would like to know about the prospect for the remaining business because that seems to be a far lower margin business? What kind of scale up do you see both in revenues and margin potential?
A: We started our new plant in Vishakapatnam for Formaldehyde and soon will be commissioning the second plant for Hexamine that is targeted largely towards the export market. I would think, maybe not 2011-12, since it will take some time for the demand to pick up before we are able to fully utilize our capacities. 2012-13 should be an excellent year for the existing businesses in the company.
We are making pentaerythritol, which is used in the paint industry. The paint industry is growing rapidly in the country and the demand for pentaerythritol is also growing. Formaldehyde is used in the construction industry and is growing rapidly. The existing businesses would be generating much better margins in the years to come.
Sharing further details on the fund utilization from the deal, he says, “The company will be left with Rs 350 crore post taxes and retiring of debt. The cash on balance sheet is to be at Rs 375 crore while cash on per share is seen at Rs 70.” He also expects the existing business to pick up FY13 onwards and the margins to improve going forward. The company is unlikely to pay dividends.
Below is a verbatim transcript of RV Kanoria's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: You have sold the chloro-chemicals division and not a stake in the company, the listed entity there will be no open offer. What do you intend to do with this Rs 830 crore in terms of returning some money to your minority shareholders from the proceeds?
A: Out of the Rs 830 crore there is a tax from the slump sale. We will be retiring all the debt related to this division. We will be left with Rs 350 crore to Rs 375 crore. As far as the shareholders are concerned, there is going to be tremendous capital appreciation in our shares because of monetization of the value which was actually locked into this division.
Fundamentally, we are looking at deploying this money for growth and for diversifying into new businesses. The biggest challenge is going to be look at both inorganic as well as organic growth within the company.
Q: Why would there be an appreciation of the stock because of the monetization of this deal? It doesn’t have anything to do with the listed stock and for the entity that remains, it actually seems to be a lower margin business, the revenue profile of course is lower because it doesn’t contribute that much at this point.
A: The cash on the balance sheet will be around Rs 350 crore to Rs 375 crore. If you look at approximately Rs 5 crore outstanding shares, Rs 70 a share would just be value of the cash on the balance sheet notwithstanding the other businesses.
Q: Would like to know about the prospect for the remaining business because that seems to be a far lower margin business? What kind of scale up do you see both in revenues and margin potential?
A: We started our new plant in Vishakapatnam for Formaldehyde and soon will be commissioning the second plant for Hexamine that is targeted largely towards the export market. I would think, maybe not 2011-12, since it will take some time for the demand to pick up before we are able to fully utilize our capacities. 2012-13 should be an excellent year for the existing businesses in the company.
We are making pentaerythritol, which is used in the paint industry. The paint industry is growing rapidly in the country and the demand for pentaerythritol is also growing. Formaldehyde is used in the construction industry and is growing rapidly. The existing businesses would be generating much better margins in the years to come.
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