Kiri Dyes: Dystar Takeover

AHMEDABAD-BASED Kiri Dyes & Chemicals’s (KDCL) successful acquisition of Dystar for an enterprise value of Rs 1,350 crore has catapulted the company in the global league. The acquisition gives Kiri Dyes an annual turnover of Rs 5,000 crore, with a 21% global market share in textile dyes. The deal was financed through e65 million of debt and e35 million of FCCBs issued by Kiri’s subsidiary in Singapore. The company also took over current trade payables worth around Rs 650 crore. With this, Kiri’s consolidated debt rose to Rs 600 crore with the annual interest burden working out to close to Rs 45 crore. The buyout entailed purchase of 17 manufacturing facilities out of Dystar’s 19 along with all brands, patents and intellectual property rights. KDCL’s balance sheet is set to expand more than 11 times, considering the addition of Rs 3,200 crore worth of assets as part of this deal. Dystar, earlier owned by BASF, Bayer and Hoechst in 30:35:35 proportion, was acquired by Los Angelesbased private equity firm Platinum Equity in August 2004. In September 2009, the company had to file for bankruptcy due to liquidity problems. While the acquisition expands Kiri Dyes’ horizon multi-fold, it now has the responsibility of turning it around while managing a heavy financial burden. The company has already rationalised manpower at the Dystar units and plans to optimise manufacturing and sourcing by exporting more from India. Kiri Dyes has been preparing for an acquisition for quite some time now. In August 2009, its board had approved raising Rs 250 crore through qualified institutional placements or FCCBs or GDRs. Simultaneously, it increased the limit of FII investment to 49% from earlier 24%. The company also raised its borrowing powers from Rs 300 crore to Rs 700 crore. Kiri Dyes’ scrip hit an all-time high of Rs 877 before closing at Rs 810 on BSE on Thursday. The current valuation is around 12 times its estimated FY11 profits, assuming a 2% net profit margin on a consolidated sales. However, considering the uncertainties involved, investors should wait for the actual numbers before taking an investment call.