Mahindra’s flagship group firm Mahindra & Mahindra (M&M) has diversified its presence in the agriculture sector by acquiring 38% stake in micro-irrigation firm EPC Industrie for Rs 43 crore ($9.5 million). EPC is a public listed firm and the stake purchase will require M&M to come with an open offer to purchase a further 20% stake.
But since the share price of the company has shot up 20% in early trading hours post announcement of the deal, hitting the upper circuit for the day at Rs 76.95, M&M may end up holding a 38% or marginally more in the near future. M&M will subscribe to fresh shares at a price of Rs 66.1 so the current price is over 16% more than the expected open offer price.
Nashik-based EPC was started by IIT Mumbai alumnus K Khanna three decades ago. It has operations in 12 states selling drip irrigation systems, sprinklers and industrial pipes. For the year ended March’10, EPC had revenues of Rs 75 crore ($16 million) with net profit of Rs 0.95 crore ($0.2 million).For the half year ended September’10 its revenues was Rs 43 crore with profit of Rs 0.95 crore.
On the expanded capital base and annualised profit for the year ending March’11, EPC would have a earnings per share of Rs 1.1 that would value the firm at 60 times the price at which M&M subscribes to fresh shares.
EPC is also backed by Schroder Credit Renaissance Fund Ltd that owns 43% besides Credit Renaissance Development Fund that held 8% as of December’10. Both funds are part of Credit Renaissance, an independent investment advisor founded in June 2000 by Steven Gallen Edersheim and Julian Schroeder.
The flagship Schroder Credit Renaissance Fund invests globally in undervalued, hard assets to realize capital appreciation through distressed debt at depressed prices while Credit Renaissance Development Fund provides expansion capital to small and mid-sized industrial and consmer goods business in India and China.
Although M&M is largely known as an automobile firm, it has a large exposure in the agri space through its farm equipment business and it is the world’s largest tractor maker by volumes. This also provides a large network in agriculture space that it can leverage to grow the business of EPC. M&M is also the holding arm of the group’s investments in various other businesses including shared vacations operations under Mahindra Holidays and technology firm Tech Mahindra that also includes Mahindra Satyam.
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