Where's the next round of consolidation going to happen? On India's east coast, and surprise, surprise, in the fertiliser industry.

By  Nitya Varadarajan

If somebody had to do a survey on what sectors companies should not invest in, fertilisers would be somewhere in the top half of that list. Why then is the Chennai-based Murugappa Group so gung-ho about this business? So gung-ho that, even as its competitors on the east coast are reeling, its Coromandel Fertilisers is actually scouting for acquisitions. A. Vellayan, Group Director (Marketing), has a rather simple reason for doing so. ''We are the most cost-efficient manufacturer of fertilisers,'' he shrugs. ''We will just take over one plant, but we are keeping our options open,'' adds R.S. Nanda, President and Managing Director of Coromandel Fertilisers and Director in EID Parry, another group company with a presence in fertilisers.

The options are indeed quite a few down the east coast, with plants either up for sale or in which the government is seeking to sell shares. The line-up? Godavari Fertilisers, Madras Fertilisers Ltd. (MFL) and Paradeep Phosphates. Godavari Fertilisers, in which the Andhra government plans to divest its 26 per cent stake, appears to be a favourite as it has a presence in the same segment as the Murugappas, which is phosphatic fertilisers. The group will consider MFL, but only if the government is willing to divest just the phosphatic business. ''We want nothing to do with the urea plant,'' says the 56-year-old Nanda, who is credited with turning around Coromandel Fertilisers after taking over in 1993-94. The acquisitions will be done via Coromandel, and rather than pay out hard cash, the Murugappas will use stock as currency.

Along with the proposed acquisitions, the group is also considering merging the fertiliser and pesticide units of Coromandel and EID Parry (EID Parry has a 78 per cent stake in Coromandel). A legal merger is all that's left actually, given that the fertiliser units of both the companies operate virtually in concert. ERP is uniformly implemented and imports are sourced commonly, for instance. ''The restructuring is imminent,'' says Nanda.

While the integration makes sense, the acquisitions surprisingly do, too. The group feels that consolidation amongst phosphatic fertiliser makers is inevitable, as players using naphtha as feedstock will struggle to remain cost-competitive once its price is deregulated. What's more, demand for phosphatic fertilisers is expected to increase to 5.5 million tonnes in five years, from 4.3 million tonnes currently. Supply? Current production capacity is 5 million, and nobody is brave enough to put up a greenfield plant in this industry. Debottlenecking exercises by various players will result in demand and supply running virtually neck and neck. In such a scenario, acquiring an existing player is the best avenue for growth. Other than takeovers, the Murugappas are also considering an entry into trading alliances with international players, perhaps for urea.

Such alliances and the acquisition will doubtless help the Murugappas shore up their market shares. Not that the figures look bad as they stand today: 21 per cent in Orissa, 12 per cent in West Bengal, and a whopping 57 per cent in Andhra. Operationally, too, the group is head and shoulders above its competitors. The operating margins of EID Parry's fertiliser division stand at 9.8 per cent, and Coromandel's are even better at almost 15 per cent. Closest competitor Spic can boast operating margins of just 7.7 per cent, whilst Hindustan Lever Chemicals has one of 4.7 per cent (all figures are as on March, 2000). Of course, the other players on the east coast would be glad to show operating margins of even 2 per cent. Now, isn't that good news for a prospective acquirer?

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY  | TEENS TODAY  
THE NEWSPAPER TODAY | MUSIC TODAY | ART TODAY | CARE TODAY

© Living Media India Ltd