The Murugappa Group-owned Coromandel International Ltd is betting on its acquisition of NACL Industries Ltd to strengthen its domestic formulations business, Latin American presence and create synergies to establish a foothold in contract drug manufacturing, according to managing director S. Sankarasubramanian.
“NACL has a good presence in insecticides, herbicides and fungicides and the domestic market. This will help us establish a strong presence in the domestic formulations business,” said Sankarasubramanian. “Besides, they are manufacturers for global MNCs and have been supplying them for over two decades.”
Those relationships can also be leveraged for potential CDMO (contract development and manufacturing organization) opportunities later, he said in an interview with the Mint. Last year, Coromandel Industries said that it was diversifying into CDMO and speciality chemicals businesses.
Last Thursday, Coromandel announced that it will acquire a 53% stake in NACL for ₹820 crore at ₹76.7 per share. Since then, Coromandel International stock has risen by over 12%, while NACL’s share price has surged 32%.
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“The valuation of 1.2x its EV/sales is reasonable considering its cheaper peers are trading ~2x EV/sales,” said a 13 March ShareKhan report on the deal. “The acquisition will enhance Coromandel’s position in the crop protection business with their large presence in domestic formulations and diversified product portfolio.”
NACL set up a manufacturing facility in Dahej, Gujarat two years ago. This would also help Coromandel launch new product pipelines faster as production can commence immediately. NACL’s expertise in fluorination chemistry will also help Coromandel launch related crop-protection products, Sankarasubramanian said.
The acquisition will also help the company increase its presence in the Latin American market, which is a stronghold for Coromandel. “We also plan to enter the B2C space in Latin American markets,” he said. “Our ability to connect with customers in the global Latin American markets as Coromandel will be helpful with the enhanced product portfolio.”
Regulatory approvals pending
The deal still needs clearances from the Competition Commission of India and the Securites and Exchange Board of India. An open offer to acquire up to 26% additional stake from public shareholders under Sebi rules could take place in July or August.
“NACL will continue to operate in the current form and structure,” a company spokesperson said. This would make it a subsidiary of Coromandel–itself an arm of EID Parry India Ltd. EID Parry is a subsidiary of Tube Investments. All these companies are publicly listed.
Meanwhile, Coromandel, through its drone-spraying service Gromor Drive, is also expanding its drone capacity for agriculture use over the next two years. Coromandel owns a 57% stake in Chennai-based Dhaksha Unmanned Systems, which manufactures drones for agriculture and defence purposes and supplies them to the company. Coromandel has 500 drones and expects to hit over 1,500 over the next two years.
“Our ambition is to increase the volume of drone spraying in the coming years. We are trying to target more than a million acres of drone spraying, which we see a huge potential,” Sankarasubramanian said. He said that using drones reduces water usage to a tenth, solves labour shortages and allows spraying crop protection and nutrient and fertiliser products in difficult-to-reach areas such as sugar cane fields.
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Dhaksha has an orderbook of ₹250 crore, according to a ShareKhan report. Coromandel is also establishing a state-of-the-art multi-product plant to produce recently patented fungicides in Ankleshwar, Gujarat.
The company had outlined significant capital expenditure, including a ₹1,000 crore investment, over two years (announced in 2023) to expand operations in crop protection chemicals and establish a foothold in speciality chemicals and CDMO businesses, the report added.
