GCIP acquisition gives sustainability but also substantially increases the risk profile for TCL
Tatas are on the rampage again! This time, it’s the less
talked about Tata Chemicals Ltd. (TCL) that has created the buzz. The company announced a big ticket billion dollar mega acquisition of the US-based natural soda ash maker – General Chemicals Industrial Products (GCIP) on January 31. The acquisition (100% stake through a mix of debt & equity) will not only make TCL the 2nd largest soda ash maker in the world, but also help it command over 14% (over 5.5 million tonnes) of the world’s total soda ash capacity. However, it’s the choice of the target that deserves the real applause! Once the acquisition is complete, over 50% of TCL’s capacity would be through the natural route. This means both sustainability and natural hedge against the commodity cycle. “Since GCIP is using trona natural mineral, which can be converted into soda ash and is more cost effective (as production cost of natural soda ash is 40-45% cheaper than the cost of producing synthetic soda), it means increased profitability for TCL”, avers Rohit Nagraj, Sr. Research Analyst, Angel Broking. A Tata Chemicals spokesperson confirmed to B&E that “by 2009 and 2010, we will have more such overseas acquisitions as we believe Tata Chemicals has not yet utilised its full potential”.
The acquisition will not only enable the company to increase its capacity, but will also, in long term, give access to markets in North America, Latin America as well as Far East. Well, the sustainability is there to stay! (GCIP has natural soda ash mines expected to last for next 100 years). But then there are many who question the move on the backdrop of the US slowdown! “As many chemical manufacturers in the US are facing challenges, so will TCL,” says Paresh Nautiyal, analyst with Arihant Capital.
Moreover, TCL will undoubtedly face integration challenges with the unlisted US firm. Complicating matters further is the size and operating profile of GCIP (Moody). The transaction and the resulting financial & operating profile is still not amply clear. “Exchange rate is another challenge that stands in front of TCL”, Nagraj adds.
Well, the plan looks picturesque perfect. However, the road for TCL as well as the Tata group isn’t an expressway. Tata Group of late has raised lot of debts in financing its elephantine acquisitions and servicing, which might be a problem. There’s a maddening race at Tata Group companies to leverage in-organic growth. Tata Steel acquired Corus for $13.7 billion and another group company Tata Motors is also in talks with Ford to acquire Jaguar & Land Rover for $2 billion apart from many multi–million dollar acquisitions done by TCS, Tata Tea & other group companies in the recent past. And as most of these acquisitions have significantly increased its exposure to the American & European economies, sluggishness in there two markets could place Tata’s plans in jeopardy for quite some time to come.
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Source : IIPM Editorial, 2008
Tatas are on the rampage again! This time, it’s the less
talked about Tata Chemicals Ltd. (TCL) that has created the buzz. The company announced a big ticket billion dollar mega acquisition of the US-based natural soda ash maker – General Chemicals Industrial Products (GCIP) on January 31. The acquisition (100% stake through a mix of debt & equity) will not only make TCL the 2nd largest soda ash maker in the world, but also help it command over 14% (over 5.5 million tonnes) of the world’s total soda ash capacity. However, it’s the choice of the target that deserves the real applause! Once the acquisition is complete, over 50% of TCL’s capacity would be through the natural route. This means both sustainability and natural hedge against the commodity cycle. “Since GCIP is using trona natural mineral, which can be converted into soda ash and is more cost effective (as production cost of natural soda ash is 40-45% cheaper than the cost of producing synthetic soda), it means increased profitability for TCL”, avers Rohit Nagraj, Sr. Research Analyst, Angel Broking. A Tata Chemicals spokesperson confirmed to B&E that “by 2009 and 2010, we will have more such overseas acquisitions as we believe Tata Chemicals has not yet utilised its full potential”.The acquisition will not only enable the company to increase its capacity, but will also, in long term, give access to markets in North America, Latin America as well as Far East. Well, the sustainability is there to stay! (GCIP has natural soda ash mines expected to last for next 100 years). But then there are many who question the move on the backdrop of the US slowdown! “As many chemical manufacturers in the US are facing challenges, so will TCL,” says Paresh Nautiyal, analyst with Arihant Capital.
Moreover, TCL will undoubtedly face integration challenges with the unlisted US firm. Complicating matters further is the size and operating profile of GCIP (Moody). The transaction and the resulting financial & operating profile is still not amply clear. “Exchange rate is another challenge that stands in front of TCL”, Nagraj adds.
Well, the plan looks picturesque perfect. However, the road for TCL as well as the Tata group isn’t an expressway. Tata Group of late has raised lot of debts in financing its elephantine acquisitions and servicing, which might be a problem. There’s a maddening race at Tata Group companies to leverage in-organic growth. Tata Steel acquired Corus for $13.7 billion and another group company Tata Motors is also in talks with Ford to acquire Jaguar & Land Rover for $2 billion apart from many multi–million dollar acquisitions done by TCS, Tata Tea & other group companies in the recent past. And as most of these acquisitions have significantly increased its exposure to the American & European economies, sluggishness in there two markets could place Tata’s plans in jeopardy for quite some time to come.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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