Clariant’s Acquisition Of Plastichemix : A Lesson For India Inc

In order to consolidate its position in the chemicals business, Mumbai­based Clariant Chemicals (India) Ltd. (CCIL), a specialty chemical major had acquired Gujarat­based Masterbatches maker Plastichemix Industries (Plastichemix) for Rs 1350 million (approx $22 million). Masterbatches are solid or liquid additive for plastic, used for coloring plastics or imparting other properties to plastics. The successful acquisition catapulted CCIL as the country’s largest specialty masterbatches producer offering a wide range of products like black, white, additive, filler and color masterbatches, flushed pigments & mono­concentrates and engineering plastics compounds. This acquisition has helped the company enhance its product portfolio and provide the exacting needs of its customers. The company’s wide marketing network will enable it to deliver faster and tailor­made service and lead to a win­win situation for the stakeholder. About Clariant Chemicals (India) Ltd : Clariant Chemicals India Ltd (CCIL) is an India­based specialty chemical manufacturing company headquartered in Thane, Mumbai. CCIL is a part of Swiss specialty chemical giant Clariant AG. Clariant‘s BU Masterbatches, with more than 50 manufacturing plants around the world, is a recognized global leader in color and additive concentrates and performance solutions for plastics. CCIL is engaged, inter alia, in the business of pigments, additives, masterbatches, industrial & consumer specialties, leather services and oil and mining services and has manufacturing plants located at Roha, Kolshet (Maharashtra), Cuddalore and Kanchipuram (Tamilnadu). It manufactures and markets textiles, leather, paints, plastic, printing inks and agrochemicals products in India. It also exports products in overseas market. For financial reporting, the business of CCIL has been bifurcated into following two segments: i. Dyes and Specialty Chemicals, which includes dyestuff, synthetic resins, binder materials, functional effects and coating, auxiliaries and chemicals. ii. Pigments and Colors, which includes pigment, pigment preparations, additives, and masterbatches. CCIL is a listed entity in India with the market capitalization of approx Rs 1627 crore as on January 20, 2016, and is a zero debt company with no long­term borrowings. In the quarter ended September 2015 it reported a net sale of Rs 223 crore and the net profit of Rs 21.5 crore. Last December 2013, CCIL had divested its textile chemicals, paper specialties and emulsions businesses to American firm SK Capital. CCIL proposed to set up a greenfield manufacturing facility for masterbatches in MIDC, Ambernath (Maharastra). However, it could not be implemented because of some litigation. About Plastichemix Industries : Plastichemix Industries was founded in 1977 by Samir Sheth in Vadodara. It is one of the oldest masterbatch producers in India. From its origin as a small company employing 3­4 workers and a plant of 300 tons/year, it has grown to a production capacity of 25000 MT per annum and employs over 250 people. It has four manufacturing plants near Vadodara. For a brief period in the late 1990’s, Plastichemix was a joint venture with Ciba Specialty Chemicals, Switzerland. Plastichemix serves all sectors of the plastic processing industry. The product range is marketed under the brand names Spectra max, Polyadd, and Polyfill. As a masterbatch producer, Plastichemix has gained a reputation for high quality and innovative products.Although it started out as the manufacturer of polyethylene masterbatches for blown film extrusion, the product range now covers all the major polymers and applications. Plastichemix is a leading supplier of the black masterbatch, white masterbatch, additive masterbatch, color masterbatch, filler, flushed pigments and mono­concentrates and engineering plastics compounds. Around 1990, Plastichemix developed a process for plastic flushed colors. This development gave Plastichemix an added advantage in the quality of its products. Besides servicing the Indian market, Plastichemix exports its products to Asia­Pacific, Middle­East, Europe and the USA. Deal / Transaction : On 16 December 2013, CCIL announced its intent to acquire Plastichemix for Rs 1,350 million. The Exact mechanics of the transaction was not disclosed. It was because Plastichemix is a partnership firm and hence the deal involved purchase by CCIL of business/manufacturing plants of Plastichemix as a going concern pursuant to Business Transfer Agreement. Both the parties have entered into a draft agreement and the acquisition was subject to terms and conditions set out in the draft agreement. Simultaneously, as a part of divesture of leather services business by Clariant group globally, CCIL’s board had also approved the plan to sell its entire leather service business to Stahl Holdings BV, a member of France­based Wendel Group, for Rs 150 crore ($24 million). So, there was no adverse impact on the cash flows of CCIL consequent to this deal as acquisition can be financed through sale proceeds of leather services business Rationale/impact of the deal : With this acquisition, CCIL gained a leading position in the specialty masterbatches business in India. The deal enabled CCIL to offer a strong and extensive product portfolio with customized products and solutions and to expand its customer base significantly. As part of the future business approach, an upgraded Technical Service Laboratory was introduced to offer the market highly innovative and customized products. This acquisition was part of their global strategy to explore business opportunities in masterbatches business and to focus on emerging markets like India. Clariant and Plastichemix Industries have a complementary product portfolio that will enable them to cater to a larger customer base. This synergy will help them to develop their business. They aspire to double their sales in the next five years. Clariant will to reshape its portfolio and maintain profitability in its core businesses by exploring organic and inorganic business opportunities. This acquisition reinforces their long-term growth strategy in India and will further elevate their market position. With the successful acquisition and some restructuring, CCIL is trying to focus on its core businesses areas. In our view, this business strategy adopted by CCIL appears to be appropriate in the current business scenario.