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Research
Coromandel International - Merger of Liberty Group approved - Edelweiss
Posted On : 2013-10-05 21:37:45( TIMEZONE : IST )
Coromandel International's (Coromandel) board of directors has approved the merger of Liberty Phosphate (LPL) and Liberty Urvarak (LUL) with itself, subject to necessary approval. The company owns 79.6% and 100% stakes in LPL and LUL, respectively. LPL's public shareholders will get seven shares of Coromandel against eight shares in LPL. We believe the swap ratio is significantly positive for LPL's shareholders. The merger will be marginally positive for Coromandel. We maintain 'BUY'.
Merger positive for both Coromandel and LPL
Coromandel, along with its wholly owned subsidiary LUL, holds 79.6% equity stake in LPL. Pubilc shareholders of LPL will get seven equity shares of INR1 each of Coromandel for every eight equity shares of INR10 each of LPL. The shares held by Coromandel and LUL in LPL will get extinguished. Coromandel anticipates the merger to provide revenue synergy and perceives it to be EPS as well RoE accretive. We believe the swap ratio is significantly positive for LPL's shareholders. The merger will be marginally positive for Coromandel despite considering the equity dilution. Coromandel will issue 2.5mn equity (0.9% dilution) shares to LPL's shareholders.
About Liberty Group
The Liberty Group is amongst India's largest manufacturers of powdered and granulated Single Super Phosphate (SSP) with ~14% market share. The group has five plants located in the states of Gujarat, Madhyapradesh, Rajasthan and Uttarpradesh. It has combined capacity of 0.96MT in FY13. LPL has set up a 0.13m MT greenfield SSP plant at Rae Bareli (UP) in Q2FY14; Coromandel expects 55-60% utilisation during FY14 of the expanded capacity. The Liberty Group has significant presence in central/western/northern India. LPL and LUL posted PAT of INR0.4bn in FY13.
Outlook and valuations: Positive; maintain 'BUY'
The merger will be marginally positive for Coromandel despite considering the equity dilution. We are positive on the company owing to its expanded capacity, Sabero's turnaround and strong growth in non-subsidy business. However, exchange rates remain a key risk. We maintain 'BUY' with target price of INR251/share based on DCF.
