Sanmar goes global
By Our Corporate Bureau | 13 Apr 2007
1
Venkatachari Jagannathan reports on the South Indian chemicals manufacturer's recent global initiatives.
Chennai: Early this year when the Rs 1,550 crore turnover Sanmar Group was negotiating the purchase of Trust Chemical Industries, Egypt, a large Korean conglomerate queered the pitch with a higher offer per share for the Egyptian company. However, the Chennai-based Sanmar did not flinch. For it was on a stronger wicket and ready with its penalty kick.
Says group chairman N Sankar, "It was the penalty clause which in a way helped us to secure the deal." According to the clause, the party that failed to perform its part of the contract by the specified date would have to recompense the other with a $50 million penalty.
This clause seems to have deterred the promoters of Trust Chemical, as evaluating the Korean company's bid would have taken time. Thus, the Sanmar group pocketed the caustic soda-chlorine manufacturer for $300 million towards the latter part of March this year with the help of a bridge loan.
On the other hand, the acquisition of Germany's Rs 460 crore turnover Eisenwerk Erla GmbH, a foundry that makes turbocharger housings for automobiles was relatively smooth early this year. The company is a supplier to Borg Warner, IHI, the Audi-VW group, BMW, Daimler Chrysler, Honeywell, MAN, MTU, Liebherr, Luk and others. Sanmar acquired the company for Rs 150 crore.
Apart from going global, the Sanmar Group plans to leverage both the acquisitions for its Indian operations. The group's investments in Trust Chemicals and Eisenwerk Erla as well as its Indian investments are complementary.
Huge trust on Trust Chemical
The acquisition of Trust Chemical is expected to play an important part for the group's targeted turnover of Rs 5,500 crore by 2010.
Located at Port Said, Trust Chemical enjoys tax-free status until 2015. Using the environment-friendly membrane cell production process, the company can produce 2 lakh tonnes of caustic soda, 1.8 lakh tonnes of chlorine and 4,900 tonnes of hydrogen per annum. Further, the meagre power cost, 90 paise per unit, provides it with a great advantage for power intensive caustic soda and the vinyl chain.
"The acquisition is also in line with our strategy of being vertically integrated to overcome the vagaries faced by commodity products," adds Vijay Sankar, vice chairman.
However, for want of a buyer for chlorine - a by-product of caustic soda - the plant is currently operating at 40 per cent capacity.
Post acquisition, the Indian group has drawn up plans to invest another $250 million to expand the facility to increase the caustic soda capacity by 75,000 tonne per annum (tpa), and set up a 2.20 lakh tpa ethylene dichloride (EDC) plant.
The logical corollary for the Indian company is to manufacture 4-lakh tpa vinyl chloride monomer (VCM) to make poly vinyl chloride (PVC) in Egypt. A new 2 lakh tpa PVC plant is on the anvil. As per plans 2 lakh tpa of VCM will be used in the Egyptian PVC plant to cater to the North African and some European markets. The remaining will be shipped to India.
The Egyptian acquisition synchronises with the group's Rs 706 crore turnover Chemplast Sanmar Limited's plans. The flagship of the Sanmar group is focused on the manufacture of PVC and chlorine derivatives. According to managing director, PS Jayaraman, 2 lakh tpa of VCM will be imported for the company's new PVC plant at Cuddalore.
The company has charted out Rs 1,000 crore capital outlay for the following projects:
(a) Conversion to membrane cell caustic soda production process at Mettur plant
(b) Setting up of a 48.5 MW coal-based power plant at Mettur
(c) A 30 tpa poly silicon project to enable continuous production of silicon wafers
(d) Building a 2 lakh tpa PVC plant at Cuddalore (outlay Rs 520 crore)
(e) Expansion of PVC pipes manufacture from 22,000 tpa to 36,000 tpa at an outlay of Rs 14 crore. The company is also finalising plans for setting up a 20,000 tpa greenfield unit to take the total PVC pipes capacity to 56,000 tpa.
The German foundry will enable group company Sanmar Foundries Limited to target the transportation sector in depth. The Indian company is setting up a 30,000 tpa steel foundry at Viralimalai in Tamil Nadu to supply steel castings to earthmoving equipment manufacturers. The company plans to progress to iron castings and the group has chosen SG iron castings to supply the auto sector.
Expanding other businesses
Though the Sanmar group exited some of its business lines in recent times such as AMP Sanmar Life Insurance, and specialty chemicals among others, the group is also expanding its activities.
Driven by demand and growth in the petrochemicals, refineries and power sectors, the engineering business is on the expansion drive. The group's joint venture company Fisher Sanmar Limited expanded its large valve-manufacturing operations at a new facility near Chennai. Similarly, the safety valve joint venture Tyco Sanmar Limited has also expanded its capacity.
According to vice chairman Vijay, the group is focussing on contract research and manufacturing services (CRAMS) in the speciality chemicals line. ProCitius Research, the contract research division of Sanmar Speciality Chemicals Limited has set up a new facility at Ticel Park, Chennai.
The group's shipping company Sanmar Shipping Limited recently acquired Sanmar Paragon, a Panamax bulk carrier.
As per the scheme of things, the group will invest around Rs 3,950 crore towards all its acquisitions and expansions. "We are looking at a mix of loans, internal accruals and equity issue. The funding is in various stages of tie-up," says chairman Sankar. On its part, Chemplast Sanmar will be raising around Rs 200 crore through a rights issue and the balance from debt and internal accruals.
Chennai: Early this year when the Rs 1,550 crore turnover Sanmar Group was negotiating the purchase of Trust Chemical Industries, Egypt, a large Korean conglomerate queered the pitch with a higher offer per share for the Egyptian company. However, the Chennai-based Sanmar did not flinch. For it was on a stronger wicket and ready with its penalty kick.
Says group chairman N Sankar, "It was the penalty clause which in a way helped us to secure the deal." According to the clause, the party that failed to perform its part of the contract by the specified date would have to recompense the other with a $50 million penalty.
This clause seems to have deterred the promoters of Trust Chemical, as evaluating the Korean company's bid would have taken time. Thus, the Sanmar group pocketed the caustic soda-chlorine manufacturer for $300 million towards the latter part of March this year with the help of a bridge loan.
On the other hand, the acquisition of Germany's Rs 460 crore turnover Eisenwerk Erla GmbH, a foundry that makes turbocharger housings for automobiles was relatively smooth early this year. The company is a supplier to Borg Warner, IHI, the Audi-VW group, BMW, Daimler Chrysler, Honeywell, MAN, MTU, Liebherr, Luk and others. Sanmar acquired the company for Rs 150 crore.
Apart from going global, the Sanmar Group plans to leverage both the acquisitions for its Indian operations. The group's investments in Trust Chemicals and Eisenwerk Erla as well as its Indian investments are complementary.
Huge trust on Trust Chemical
The acquisition of Trust Chemical is expected to play an important part for the group's targeted turnover of Rs 5,500 crore by 2010.
Located at Port Said, Trust Chemical enjoys tax-free status until 2015. Using the environment-friendly membrane cell production process, the company can produce 2 lakh tonnes of caustic soda, 1.8 lakh tonnes of chlorine and 4,900 tonnes of hydrogen per annum. Further, the meagre power cost, 90 paise per unit, provides it with a great advantage for power intensive caustic soda and the vinyl chain.
"The acquisition is also in line with our strategy of being vertically integrated to overcome the vagaries faced by commodity products," adds Vijay Sankar, vice chairman.
However, for want of a buyer for chlorine - a by-product of caustic soda - the plant is currently operating at 40 per cent capacity.
Post acquisition, the Indian group has drawn up plans to invest another $250 million to expand the facility to increase the caustic soda capacity by 75,000 tonne per annum (tpa), and set up a 2.20 lakh tpa ethylene dichloride (EDC) plant.
The logical corollary for the Indian company is to manufacture 4-lakh tpa vinyl chloride monomer (VCM) to make poly vinyl chloride (PVC) in Egypt. A new 2 lakh tpa PVC plant is on the anvil. As per plans 2 lakh tpa of VCM will be used in the Egyptian PVC plant to cater to the North African and some European markets. The remaining will be shipped to India.
The Egyptian acquisition synchronises with the group's Rs 706 crore turnover Chemplast Sanmar Limited's plans. The flagship of the Sanmar group is focused on the manufacture of PVC and chlorine derivatives. According to managing director, PS Jayaraman, 2 lakh tpa of VCM will be imported for the company's new PVC plant at Cuddalore.
The company has charted out Rs 1,000 crore capital outlay for the following projects:
(a) Conversion to membrane cell caustic soda production process at Mettur plant
(b) Setting up of a 48.5 MW coal-based power plant at Mettur
(c) A 30 tpa poly silicon project to enable continuous production of silicon wafers
(d) Building a 2 lakh tpa PVC plant at Cuddalore (outlay Rs 520 crore)
(e) Expansion of PVC pipes manufacture from 22,000 tpa to 36,000 tpa at an outlay of Rs 14 crore. The company is also finalising plans for setting up a 20,000 tpa greenfield unit to take the total PVC pipes capacity to 56,000 tpa.
The German foundry will enable group company Sanmar Foundries Limited to target the transportation sector in depth. The Indian company is setting up a 30,000 tpa steel foundry at Viralimalai in Tamil Nadu to supply steel castings to earthmoving equipment manufacturers. The company plans to progress to iron castings and the group has chosen SG iron castings to supply the auto sector.
Expanding other businesses
Though the Sanmar group exited some of its business lines in recent times such as AMP Sanmar Life Insurance, and specialty chemicals among others, the group is also expanding its activities.
Driven by demand and growth in the petrochemicals, refineries and power sectors, the engineering business is on the expansion drive. The group's joint venture company Fisher Sanmar Limited expanded its large valve-manufacturing operations at a new facility near Chennai. Similarly, the safety valve joint venture Tyco Sanmar Limited has also expanded its capacity.
According to vice chairman Vijay, the group is focussing on contract research and manufacturing services (CRAMS) in the speciality chemicals line. ProCitius Research, the contract research division of Sanmar Speciality Chemicals Limited has set up a new facility at Ticel Park, Chennai.
The group's shipping company Sanmar Shipping Limited recently acquired Sanmar Paragon, a Panamax bulk carrier.
As per the scheme of things, the group will invest around Rs 3,950 crore towards all its acquisitions and expansions. "We are looking at a mix of loans, internal accruals and equity issue. The funding is in various stages of tie-up," says chairman Sankar. On its part, Chemplast Sanmar will be raising around Rs 200 crore through a rights issue and the balance from debt and internal accruals.
| Sanmar's big ticket investments | |
| Business segment | Rs in crore |
| Chemicals - India | 2,500 |
| Chemicals - Egypt | 1,000 |
| Engineering - Germany | 150 |
| Engineering - India | 150 |
| Shipping | 150 |
| Total | 3,950 |
| Group turnover towards the big league | ||
| 2006-07 | 2009-10 | Rs. in crore |
| Chemicals (India) | 600 | 1,700 |
| Chemicals (Egypt) | - | 1,600 |
| Engineering | 690 | 1,750 |
| Shipping | 110 | 200 |
| Speciality Chemicals | 150 | 270 |
| Total | 1,550 | 5,520 |
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