The race to acquire Nocil has entered the last lap with Montell and IPCL emerging the frontrunners. A report.
In April 1997, the Smart Investor had looked at the need for Nocil to tie up with a foreign partner. Things have taken a new twist as the Mafatlals plan to divest their entire stake of 43 per cent from the company. While, negotiations are on at the final stage, nothing is yet crystallised. But the Nocil shareholders are likely to see a lot of action.
Several companies had evin-ced interest in acquiring Nocil and the list included large multinationals like Dow Chemicals and Phillips Petroleum of the US and Sumitomo, Japan. Accord-ing to reports, only two contenders are left in the fray; the $3.8-billion Montell NV, Nether-lands and the domestic major Indian Petrochemicals Corpor-ation (IPCL).
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This move is encouraging for the common shareholders of Nocil. Analysts expect the takeover price to be around Rs 55, and the market price has already moved from Rs 24 in July 1997 to Rs 38 currently. The acquirer will need to make an open offer for 20 per cent of the shares at the same price at least and shareholders can profit.
The scrip could see a further rise in the short term, after the takeover. And for the long term things can only get better. In a commodity business like petrochemicals, gains can be generated firstly when prices are moving up and then when the company has enough capacity to increase volumes. Nocil is stuck on the second factor, it has been operating on optimal capacities in petrochemicals and capacity expansion is required to achieve volume growth. It now requires about Rs 5,500 crore to implement its expansions. Nocil is cash strapped, and the backing of a financially sound partner will only improve its prospects.
Montell was started as a 50:50 joint venture between Royal Dutch Shell and Italys largest natural gas and electricity supplier, Montedison Spa. But by November, it will formally become a 100 per cent Shell subsidiary. Shell has bought out Montedison for $2 billion, but the European Commissions regulatory approval for the deal is awaited. Suresh Iyer, analyst at stockbroker PR Subramanyam, says, The major benefit for Montell in buying Nocil is that it will get an entry and feel of the Indian market, albeit in a small way. This will be a good opportunity for Montell as it intends to have a key presence in the Indian petrochemical market.
The product profile of Nocil's polymers business which includes PVC, HDPE and special grade polypropylene (PP) also fits into Montells interest as it specialises in PP and can leverage Nocil to focus more on PP. Further with the demand-supply position expected to remain favourable for the next three years Nocil can end up doing well. The polymers business contributes about 34 per cent of Nocils turnover. Further Nocils extensive marketing network will also be an asset.
Though IPCL is also interested, the Indian petrochemical major according to reports is averse to Nocil being split up in three. There is a possibility that the Mafatlals may want to split Nocil in three companies; petrochemicals, polymers and rubber chemicals and then divest.
For IPCL buying the entire company makes more sense. This is largely because IPCL and Nocil enjoy synergies in operations. Besides its naphtha cracker and polymers unit, IPCL has a presence in styrene butadiene rubber (SBR) and poly butadiene rubber (PBR) . Nocils rubber chemicals unit will look lucrative as it has put up a steady performance and has a strong export presence. Acquiring Nocil could also give IPCL a competitive edge over Reliance.
According to analysts, IPCL will benefit from greater volumes. IPCL already supplies ethylene to Nocil through a pipeline. IPCL could look at expansions in the future as it has space at its catalyst plant at Thane, Maharashtra and the Nocil plant is located nearby. Further Nocil also makes certain grades of HDPE which neither IPCL nor Reliance manufacture. IPCL could also get a foothold in this market. Nocil also exports HDPE to EEC countries which will give IPCL a further access to these markets.
The final out come will largely depend on who manages to outbid the other. But overall, the common shareholders will gain. Stay invested.