Zuari, Chambal eye UB's Mangalore Chemicals

Last Updated: Fri, Feb 24, 2012 03:50 hrs

With Vijay Mallya finding it difficult to raise money for his flagship cash-strapped Kingfisher Airlines, the focus is on the smaller businesses in his UB Group empire.

According to two independent sources, Mallya has been approached by two Indian companies to buy him out of Mangalore Chemicals & Fertilisers (MCF), a 36-year-old company owned by the group. These sources said leading agro chemicals players Zuari Industries and Chambal Fertilisers & Chemicals have had preliminary dialogue with the group brass, with buyout proposals, and have even submitted initial term sheets.

Both Zuari and Chambal are part of the K K Birla Group of Companies but have always been kept separate listed companies. The two had also joined hands to successfully buy out the government in Paradeep Phosphates in 2002. Even today, it is an operational JV.

K K Birla Group flagship, Zuari Industries own 14.18 per cent of Chambal Fertilisers.

MCF is the leading manufacturer of chemical fertilisers in Karnataka. Last December, UB Group companies had 30.4 in MCF, and 99.76 per cent of those holdings have been pledged. But it’s widely held with non-institutional investors, owning 65.5 per cent and bodies corporate another 16.8 per cent. Indian and foreign institutions own 3.97 per cent of the company. Though the company’s current market cap is Rs 477 crore, it has total land assets of 190 acres. A significant portion of this can be monetised. The company has debt of Rs 200 crore. Additionally, the company has a pending inflow of Rs 500 crore from the Centre in terms of subsidy.

The talks for a possible promoter selloff in MCF are believed to be preliminary and may not even get translated into a deal closure. But with Kingfisher’s lenders pressurising Mallya to infuse fresh funds before any new lending, many feel the possibility of a transaction could be real.

Yes Bank is believed to be an advisor.

The UB Group management said, “MCF will be monetised as and when we get a good value. But with the flux in the National Fertiliser Policy, we doubt that we will get a good price for MCF now.” The initial offers, said sources, have come in the range of Rs 55–60/share, at 24-36 per cent premium to CMP.

Senior officials of MCF told Business Standard talks about UB Group exiting has been cropping up , and they do not feel the company will be sold any time soon.

However, a portfolio management services company — Guardian Advisors on behalf of their clients, has been building up its position in MCF.

During the past 18 months, Guardian Advisors has built up a 9.25 per cent holding in MCF, and as industry analysts indicate, it is building its position as it feels to get a good value buy. “Even if Mallya raises Rs 550-600 crore by selling MCF, it will not bridge the gap that is required for Kingfisher, at best, it will be a temporary relief,” said an aviation analyst.

Incidentally, when Mallya had acquired MCF, he out-bidded Tata Chemicals, RCF and Murugappa Group. So, many expect these players to once again join the race for MCF.

A Zuari Group spokesperson said, “We have not been approached by MCFL for buying the company, and as of date, we have no shares in MCFL." Chambal Fertilisers and Chemicals spokesperson did not want to comment on market speculation. With its factory located on the outskirts of Mangalore, MCF manufactures a wide range of phosphatic fertilisers and nutrients. It has a licence to produce 340,000 metric tonnes of urea and 138,000 metric tonnes of DAP. It also has a capacity to produce 217,000 metric tonnes of ammonia, an intermediate in the manufacture of urea. Over 70 per cent of Karnataka’s requirement is met by this company and MCF also caters to Tamil Nadu, Andhra and Kerala.

MCF during last fiscal reported a topline of Rs 2520 crore and a net loss of Rs 5.20 crore for the December quarter, against a net profit of Rs 20.7 crore in the corresponding quarter. Sales for the quarter were at Rs 1,049.7 crore, growth of 71.7 per cent over the same period last year. During 2011-12, it produced 3,79,500 metric tonnes of urea, 2,23,552 metric tonnes of complex fertilisers and 15,330 metric tonnes of ammonium bi-carbonate.

Analysts feel for players like Chambal Fertilisers, and Zuari, MCF gives them geographical spread and opportunities to scale up via consolidation. It has two urea manufacturing units in Gadepan in Rajasthan. The combined capacity of these plants is around 2 million tonnes per annum. It also has a joint venture in Morocco for manufacturing phosphoric acid. Chambal recently announced the setting up of two Single Super Phosphate plants in Rajasthan and Gujarat, with an investment of Rs 150 crore. In FY11, Chambal had cash of Rs 616 crore and debt of Rs 2,580 crore and a revenue of Rs 4,681 crore.

Zuari Fertiliser is an arm of Zuari Industries with manufacturing units in Zuari Nagar in Goa. Zuari produces urea, di-ammonium phosphate and other NPK complex fertilisers. Its urea manufacturing capacity is at 398,000 tonnes. For FY 10-11, Zuari Industries has a cash balance of Rs 677 crore, debt of Rs 1,600 crore and Rs 5,562 crore of revenue.

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