Ahmedabad-based Electrotherm India is selling its ductile iron pipes (DIP) division – comprising manufacturing, marketing, sales and distribution of ductile iron pipes, along with the production unit located at Kutch (Gujarat) to French glass and industrial materials company Saint-Gobain for Rs 950 crore ($180 million) in addition to value of working capital at closing of the transaction.
“The transaction will enable Electrotherm to focus on its core businesses of Engineering and Steel and also to reduce debt,” said Avinash Bhandari joint MD at Electrotherm.
Electrotherm scrip that had crashed 8.3 per cent to Rs 127.7 a share on the BSE when the firm had first announced intention of selling the ductile iron pipe division in October, only to rise thereafter, fell 5 per cent in early morning trade to hit the lower price circuit of Rs 144.05 a share, on Thursday in a weak Mumbai market. At this price, the company has a market cap of just Rs 165 crore.
KPMG Corporate Finance was the exclusive financial advisor to Electrotherm in the transaction.
Earlier media reports had suggested Saint-Gobain was in talks to acquire the pipes division of Electrotherm for an estimated Rs 300 crore-Rs 350 crore. Given the final deal value, this looks way off the mark.
ICICI Venture holds 11.9 per cent in the firm as of September 30, 2011. The PE firm had invested Rs 82 crore in Electrotherm in March 2007, but the value of its holding has shrunk to just Rs 19.6 crore.
The investors’ negative reaction to the sale announcement is arguably due to the impact upon revenues and profitability due to the restructuring. The company drew almost a fifth of its consolidated revenues from the ductile iron pipes business for the year ended March 2011.
The gross sales and profit before interest and tax (PBIT) of the DIP division for FY 2010-11 was Rs 420.83 crore and Rs 28.05 crore, respectively. While revenues rose almost 42 per cent over the previous year, margins in the business were hit. For the corresponding period in FY 2009-10, gross sales and PBIT of the DIP division was Rs 295.41 crore and Rs 51.02 crore, respectively.
The company, however, had consolidated net profit of just around Rs 8.9 crore as the high cost of servicing the outstanding debt shaved off net margins.
Electrotherm India also manufactures electric scooters under the brand name of YO Bykes and further focuses on engineering projects and renewable energy equipment business.
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