Indo Amines Ltd: Will the amalgamation assist?

Indo Amines Restricted (IAL), incorporated as a public restricted firm in 1994 in the State of Maharashtra, is a important worldwide manufacturer, developer and supplier of speciality chemical substances and active pharmaceuticals components. The merchandise manufactured discover application in different industries like Pharmaceuticals, Agrochemicals, Fertilizers, Petrochemicals, Road Building, Pesticides, Perfumery Chemical compounds, Dyes, and Intermediates, and so on.

The company has four manufacturing sites: They are situated at Baroda (Gujarat), Dombivli, Rabale (Navi Mumbai) and Dhule. IAL is a single of the largest manufacturing business in South Asia.

Transaction

The scheme of amalgamation between Classic Oil Limited, wholly owned subsidiary of the firm (Transferor Firm 1) and Sigma Solvents Private Limited (Transferor Company two) with Indo Amines Restricted (Transferee Firm) and their respective shareholders and creditors.

Consideration

There is no obligation to carry out valuation of Classic Oil Restricted (COL) as there is an amalgamation of Wholly Owned Subsidiary with its Parent Firm i.e. IAL.
The Share Exchange Ratio of the Equity Shares for Amalgamation of Sigma Solvents Private Limited (SSPL) into Indo Amines Restricted at ten (Ten) equity shares of IAL of Rs 10 (Rupees Ten Only) every fully paid up for each 26 (Twenty-Six) equity shares of Rs ten (Rupees Ten Only) every single totally paid up.
Basis for Amalgamation: The worth per equity share of SSPL and IAL is arrived at by employing the Future Earnings Capitalisation Technique and Market place Price tag Approach respectively.

Transaction Overview

Indo-Amines-Amalgamation-1

Enterprise of Three Firms

IAL COL SSPL
This is a listed business. It is engaged in the company of Simple Chemical Manufacturing.

Its principal items consist of Organic Chemicals, Bulk Drugs, Fine Chemical compounds, Compounds, Speciality Chemicals, Short Chain Amines, Residue, Fatty Amines, chemical intermediaries for pharmaceuticals.

No Company activity.

And financials of COL are not accessible.

Sigma Solvents Private Limited is a SME operating in niche markets.

SSPL manufactures chosen chemicals for identified end users in-

Bulk Drugs
Dyestuff
Disperse Dyes
Pigments
Surfactants
Textile Auxiliaries
Adhesives
Water Treatment Chemical compounds
Epoxy Curing Agents
Mining
Financials

Table 1: Monetary Position (All Figures in Rs Lakh and as on 31.12.2016)

Particulars Indo Amines Ltd Classic Oil Limited Sigma Solvents Private Restricted
Net worth 5871.24-31.35-537.28
EPS 3.06-2.63-51.99
Book Value 17.84–
Sales 19897 0 850.30
PAT 1007-19.47-632.46
Table 2: Finacial Efficiency of IOL (All Figures in Rs Crores)

Particulars 2016(9months)2016(31st March 2016)2015 2014
Net Sales 198.97 242.73 215.47 217.28
Operating Profit 26.45 29.61 22.4 18.93
Operating profit percentage %13.29%12.20%10.40%eight.71%
Profit Right after Tax 10.07 8.59 4.62 5.88
Capital Employed (Net worth + Long term borrowings)68.81 62.2 52.48 47.25
ROCE 26.04%28.57%23.48%27.70%
P/E Ratio (as on 31st March)25.70 14.71 14.68 5.20
Industry Cap (as on 31st March)258.89 126.40 67.64 30.59
Table three: Monetary Efficiency of COL (All Figures in Rs. Lakhs)

Particulars Period ending 31st December 2016 Period ending 31st March 2016
Reserves and Surplus-105.34-85.86
Profit After Tax-19.47-14.32
Classic Oil Restricted has no revenue from operations, and it holds fixed assets such as Leasehold Land, Factory Creating and Motor Car, which will be transferred to Indo Amines Restricted after amalgamation.

Total other costs for the period ending on December 2016 is Rs 19,02,341. This involves significant costs for the period ending on 31st December 2016, relating to auditors’ remuneration Rs 3.5 lakh, repairs and maintenance to machinery Rs two.61 lakh and legal and skilled charges Rs 8.07 lakh.

Table 4: Financial Overall performance of SSPL (All Figures in Rs. Lakhs)

Particulars Period ending 31st December 2016 Period ending 31st March 2016
Reserves and Surplus-657.78-33.42
Profit Right after Tax-632.46 5.11
Table 5: SSPL Income &amp Costs Specifics (All Figures in Rs. Lakh)

Particulars 9 months Equivalent 12 months 31st march 2016% change Remarks
Sales 850.30 1133.74 1388.83-18.37%Reduce
other expenses 261.58 348.77 260.54 33.87%Increase
Salaries and Wages 125.89 167.86 67.49 148.71 Increase
Staff welfare expenses 12.41 16.54 5.66 192.37 Increase
Bad debts 111.61 NA NA
Advances to supplier w/off (prior period costs)144.86 NA NA
Merger of loss-generating organization majority hold by promoters

Table six: Monetary Position of IOL Post Amalgamation (All Figures in Rs. Lakh as on 31st Dec 2016)

Particulars Pre-amalgamation Post-amalgamation
Equity Share Capital (A)3291.68 3337.83
Reserves and Surplus
Capital Reserves 19.77 20.58
Capital Redemption Reserve-5.00
Securities Premium Reserves 222.25 222.25
Basic Reserves-ten.26
Surplus in the Statement of Profit and Loss 2337.54 1558.84
Total Reserves and Surplus (B)2579.56 1816.93
Net Worth (A+B)5871.24 5154.76
Reduce in market place capitalisation of the organization shows that stakeholders are not favourable to the merger.

Crucial Highlights of this Amalgamation

Rewards

IAL will use the fixed assets of COL such as leasehold land, factory creating for the erection of its new plant after amalgamation. Thereby attaining a leverage of combined assets and constructing a stronger sustainable company.
There will be stability of the operations, cost savings and greater profitability levels for amalgamated firm post-merger.
Greater integration, economic strength, and flexibility for the amalgamated firm, which would outcome in enhanced general shareholder worth.
Benefit of operational synergies to the combined entity in areas such as raw material sourcing, solution placement, advertising, and sales promotion initiatives, which can be put to the best benefit of stakeholders.
However, following going by means of financials, the actual image of the amalgamation has the following regions of concern which demands clarity:

How significantly is the capex for the erection of new plant? What are the measures for revival taken by IAL?
As per the above financial evaluation, there is a reduce in industry capitalization of transferee firm post-amalgamation, hence there will not be any genuine improvement in the shareholders’ worth. So why does the company want to amalgamate?
There will be no income synergy benefit to IAL post-merger with SSPL because the sales of SSPL are decreasing and therefore there will no actual marketplace share for IAL due to amalgamation with SSPL.

Conclusion

This amalgamation will pose no benefit to stakeholders in the real sense.
BOLA TANGKAS