Apcotex Industries held conference call on 26th April 2016 to discuss the acquisition of Omnova Solutions Private Limited (now known as Apcotex Solutions). Abhiraj Choksey, Managing Director addressed the call. Apcotex Solutions is now proposed to be merged with Apcotex Industries.

Highlights of the call:

In Feb 2016, Apcotex Industries (Apcotex) acquired 100% of the equity capital of Omnova Solutions India (OSIPL) in an all-cash deal.

Incorporated in 2007, Omnova provides emulsion polymers, specialty chemicals and functional and decorative surfaces.

Apcotex Industries, which has a manufacturing facility at Taloja (Maharashtra) produces performance emulsion polymers, which are used in paper, carpet, construction, paints, textile, automotive components, footwear, etc.

The enterprise value of the transaction is Rs 36 crore and Apcotex plans additional deployment of about Rs 40 crore in the acquired business. The acquisition has been funded entirely through internal accruals.

Omnova Solutions India Pvt Ltd is the Indian arm of US-based specialty company Omnova Solutions Inc.

The deal is to align Apcotex's long-term strategy to tap the full potential of the emulsion polymers industry, through organic and inorganic growth.

Omnova Solutions is the only producer of nitrile rubber in India and only the second producer of high styrene rubber after Apcotex.

Omnova Solutions has a factory in Valia (Gujarat), which it acquired in 2010 from France's Eliokem International. The French firm had bought the plant from Apar Industries in 2008

The acquired business will add muscle to Apcotex through additional gross revenue of around Rs 200 crore. Apcotex Industries reported gross revenue of Rs 391 crore, EBITDA of Rs 47 crore and PAT of about Rs 25 crore in FY 2015.

The acquisition gives Apcotex an opportunity to grow in new adjacencies in emulsion polymers such as nitrile rubber, nitrile powder and nitrile/PVC blends, which find application in automotive components, rice de-husking rolls, rubber hoses, moulded rubber products, and other industrial products

The company has diversified products which cater to diversified industries.

It has diversified presence and has strategically located facilities (in Taloja in Maharashtra and in Valia in Gujarat.

This sizable bolt-on acquisition bolsters its optimism about the long term value creation potential of Apcotex.

It gains access to new product lines, technologies and processes with a potential to scale up significantly.

The acquisition of Omnova Solutions will help Apcotex become the largest manufacturer of NBR and HSR in the country.

Apcotex will continue to focus on improving market share and capacity utilisation in India, reducing high cost structures and optimising usage of capital.

It believes this acquisition will yield a superior value to all our stakeholders

Apcotex is confident of improving its performance in the future. This is expected through the synergy that will flow on account of significant commonality of raw materials, cost optimization, similar chemistry, plant set-up, production processes, R&D facilities and human resources.

Apcotex will also explore rationalizing of the asset base of the acquired business.

Apcotex Industries has presence in paper industry, Carpet industry, Rubber industry, Construction and Tyre/Cord Dipper industries .

It has been continuously upgrading its own technology through in house research & development efforts to meet the changing needs of customer.

Omnova Solutions has presence in Auto & Industrial industry, Hoses & LPG industries, and Rice Rolls industry.

Additional deployment of funds is planned in the acquired business in short & medium Term for modernization & de bottlenecking. This will be done in the first year itself.

The acquisition will see Apcotex having product Base Expansion and expansion in end user market and expansion in customer base. It will result in manufacturing & process synergies and operating leverages.

As far as cost benefit is concerned Apcotex will enjoy optimization of distribution network, common expenses and contract renegotiation.

There will also be working capital efficiency and margin expansion.

Since the acquired company is a major producer of High Styrene Rubber in India, Apcotex will also be able to add new industries/markets/customers mostly in automotive components industry, Rice Roll Manufacturers and Rubber Component Manufacturers etc

The company will enjoy tax benefits of Rs 10 - 14 crore.

Better working capital efficiency will release around Rs 12-15 crore. Working capacity for Omnova Solutions is 100 days and for Apcotex is under 50 days.

Apcotex will also get 15 Acres of Land at Valia which is just ~23 Kms from Ankleshwar, Gujarat.

It is an accretive acquisition as operating benefits will significantly improve margins.

Apcotex has a strong global presence in South East Asia, Middle East & Africa and intends to tap the Asian Markets.

Apcotex Solutions products help it capture market where currently 80% is catered through imports.

Apart from the existing product portfolio, the next generation product pipeline is strong to propel growth.

Its presence in the stable growth industries like Paper, Construction, Carpet, Tyre and Rubber provides stable growth & is a strong base for Apcotex Industries.

The company hopes to increase OPM of Omnova Solutions (which is low now) to the levels of Apcotex Industries. OPM of Apcotex is likely to remain in the range of 12-14%.

Omnova Solutions hardly has any export sales. It might hardly have 1-2% of its sales as exports.

Total plant capacity of Omnova Solutions is 20000 tons. After the acquisition, total capacity of Apcotex will be 85000 tons.

Capacity utilization of Apcotex is 70-75%. Capacity utilization of Omnova Solutions is 70%.

Apcotex market share in the construction chemical space is 35-40% n the segment that it plays.

Omnova Solutions had cash profit of about Rs 2 crore as on November 2015. But it is loss making in PBT levels.