Nitco Tiles mulls expansion strategies

May take the acquisition route or set up a unit in Maharashtra

Nitco Tiles is considering the acquisition of an existing wall tile manufacturing unit or setting up its own unit in Maharashtra. The company will take a decision in this regard by May 31, 2006.

Addressing a press conference in connection with the company's public issue, Vivek Talwar, managing director, Nitco Tiles, said, "We are looking at acquiring companies. The cost of acquisition will be between Rs 20 crore and Rs 25 crore when compared to Rs 35-40 crore for setting up a new facility." However, in case of acquisition, the company would have to invest additionally to expand manufacturing capacities, he added.

Talwar, however, declined to name the companies that Nitco has been negotiating with. He said the company had earmarked about Rs 37 crore of the proceeds of the issue for acquiring an existing wall tile manufacturing unit.

According to Nitco Tiles red herring prospectus, if there arises a scenario, where the company may be unable to identify a suitable acquisition by May 31, 2006, it will work towards setting up a greenfield wall tile manufacturing facility with a capacity of 1.75million sq mt annually. This new facility will commence commercial production by April 2007. Any delay in commercial production may adversely impact cash flows and profitability of the company.

Nitco Tiles will enter the capital market with its initial public offering of one crore equity shares of Rs 10 each for cash, at a price to be determined through a 100 per cent book-building process. The issue opens on February 22 and closes on February 27, 2006. The price band for the issue has been fixed at Rs 140-Rs 168.

The objectives of the issue are to raise capital for the expansion of existing manufacturing facilities of ceramic floor tiles, installation of six windmills, acquiring or setting up a wall tile manufacturing unit, meeting the expenses of this issue and listing the equity shares of the company on the stock exchanges. The company will invest Rs 37 crore in installing six windmills.

While the prospectus of Nitco Tiles' shows that the total estimated fund requirement for its projects is about Rs 95.6 crore, the company has provided itself a headroom to raise up to Rs 168 crore. The balance proceeds of the public issue will be used for general corporate purposes including but not restricted to acquisitions and repayment of loans.