Mergers And

Acquisitions
Analysis EVA

Coromandel International
Acquires Ficom Organics Ltd.

GROUP MEMBERS
(Corporate Finance):
Amey Bhonslay

Swaty
Sharma

Yashesh
Sangani
 Coromandel Ineternational Ltd Acquires Ficom Fertilizers Ltd.

Coromandel International Limited is in the business segments of Fertilizers, Specialty Nutrients, Crop
Protection and Retail. It manufactures a wide range of fertilizers and markets around 2.9 million tons
making it a leader in its addressable markets and the second largest phosphatic fertilizer player in
India.

In its Endeavour to be a complete plant nutrition solutions company, Coromandel has also
introduced a range of Specialty Nutrient products including Organic Fertilizers.

The Crop Protection business produces insecticides, fungicides and herbicides and markets these
products in India and across the globe.

Coromandel has also ventured into the retail business setting up more than 425 rural retail centers
in the agri and lifestyle segments. The Company clocked a turnover of Rs.6527crore in 2009-10 (USD
1.44 billion as on March 31, 2010). Coromandel was ranked among the top 20 best companies to
work for by Business Today and was also voted as one of the ten greenest companies in India by
TERI, reflecting its commitment to the environment and society. Coromandel is a part of the
Rs.13,617crores (USD 3.03 billion as on March 31, 2010) Murugappa Group.

Vision:

To be leader in the phosphatic fertilizer industry producing high quality fertilizers at low cost and
giving satisfaction to all stake holders

Mission:

To enhance the prosperity of farmer through the supply of quality farm inputs and related services
to ensure value for money.

Products and Services

Coromandel has multi-locational production facilities and manufactures & markets a wide range of
Phosphatic Fertilisers, Crop Protection Products, Speciality Nutrients like Sulphur Pastelles, Water
Soluble Fertilisers, Micro Nutrients and Organic Fertilisers. The Company exports its Crop Protection
products to countries across the globe. Coromandel also provides agri input solutions to the farmers
and offers life-style products through its rural retail centers. The Company is managed by competent
and committed professionals and is known for fostering a climate of high performance and
continuous improvement.
About Ficom Organics Ltd:

The operations of Ficom include manufacture and sale of agrochemicals of technical grade and
pesticides. Rasilah is engaged in the business of investment and finance.They provide malathion,
chlorpyriphos, quinalphos, temephos, phorate and ethion.

During the year 2005-06 the performance of the company was affected mainly due to drop in
exports. The exports decreased by 25.79% due to reduced Malathion demand in African countries
for Locust control. The export turnover constituted about 52.45% of the sales turnover of the
company for the year. Further delay and erratic monsoon conditions in the north zone had an
adverse impact on the sales during the year.

The company also could not achieve the estimated sales due to paucity of working capital and non-
receipt of Government approval for the commencement of production of CPP (technical). The raw
material prices also had gone up due to increase in the crude oil prices.

All these factors had exerted pressure on operating margin which ultimately resulted in operating
loss for the year. During the year, the company negotiated with IDBI-Stressed Assets Stabilization
Fund and settled the outstanding dues under onetime settlement, consequent to which a sum of Rs.
5.97 cr relating to principal and interest was written back.

The Company had provided a sum of Rs. 10.41 cr towards impairment of fixed assets in accordance
with the accounting standards prescribed in this regard. However optimum utilization of resources
and effective cost control measures taken by the management helped in achieving the performance
which enabled the company to reduce its losses. The company achieved export turnover of Rs. 26.30
cr during the year as against Rs. 35.44 cr for the previous year.

These factors made Ficom a good target for other realted companies to achieve an inorganic growth
via merger and acquisition.
The Deal:

Amalgamation of Ficom Organics Limited and its wholly owned subsidiary company Rasilah
Investments Limited with Coromandel Fertilizers Limited.

Coromandel has acquired 50.2% of the equity shares of M/s. Ficom Organics Limited(Ficom)

During the year 2006-07, the Coromandel acquired Ficom Organics Limited, a technical grade
Pesticides manufacturing Company based at Ankaleswar, Gujarat and the same has been merged
with CFL effective April 1, 2006 .

The Scheme of Amalgamation of Ficom Organics Limited (Ficom) and Rasilah Investments Limited
with the Company was approved by the Hon'ble High Courts of Andhra Pradesh and Mumbai.
Pursuant to the Scheme of Amalgamation, 8,31,981 equity shares were issued and allotted to the
shareholders of Ficom Organics Limited, on a fully paid up basis, in the ratio of 3 (three) equity
shares of Rs.2/- each of Coromandel Company for every 11 (eleven) equity shares of Rs.10/- each of
Ficom. Consequent to this, the paid up capital of Coromandel Company went up from Rs 25.41 crore
to Rs 25.57 crore.

The Amalgamation has been accounted for under the 'Purchase Method' as prescribed by
Accounting Standard 14, "Accounting for Amalgamations", issued by the Institute of Chartered
Accountants of India. In accordance with the Scheme, the assets and liabilities of Ficom and Rasilah
were taken over at their fair values determined by an independent valuer as on April 1, 2006 and Rs.
852.88 lacs being the excess of the fair value of the net assets over the consideration payable has
been credited to the Capital Reserve in the books of the Company.

As per the Scheme, 3,140,567 Equity Shares of Rs. 10/- each of Ficom held by the Company and
91,000 Equity Shares of Rs. 10/- each of Rasilah held by Ficom, stand cancelled.

Financing of Deal:

The term loans from banks, taken over pursuant to the amalgamation of Ficom Organics Limited
with the Company, were secured by way of equitable mortgage of the Company's immovable
properties, present and future, situated at Ankleshwar, (“unit”) and hypothecation of whole of the
units, movable properties .
Benefits to Coromandel:

With the acquisition of Ficom Organics, the Company has a wide range of products in the Pesticides
business and has made entry into public health business segment. The Company has also developed
a strong dedicated team of marketing professionals for the Pesticides business. It discontinued some
of the products of Ficom that were not making profit. They increased the margins of products where
they thought there is a potential to grow and increased the production of some of the products by
20-30%.

Coromandel spend around Rs 10-20 cr during FY07 for revamping Ficom's manufacturing unit by
setting up pesticides formulation unit near Jammu. They also tied up with CFL South African major
Foskor for raw material procurement

This Amalgamation will enable the Company to consolidate the Pesticides business and reap the
synergy benefits from the consolidation.

Effect On Share Prices:

Soon after the merger deal was announced Coromandel Fertilisers jumped 4% to Rs 81. A huge
45,071 shares changed hands in the counter on BSE. Coromandel Fertilisers scrip witnessed a solid
surge in February 2006 before cooling off in March 2006. From a low of Rs 67.35 on 10 February, it
spurted to Rs 85.75 on 22 February 2006. It had cooled off to Rs 77.85 by 16 March 2006.

120

100

80

60 Coromandel
Ficom
40

20

0
10-Feb 10-Mar 10-Apr 10-May 10-Jun

Also, FICOM Organics jumped 5% to Rs 15.55 – the maximum permissible level of the day. There
were outstanding buy orders for 4.1 lakh shares in FICOM at the 5% upper limit.

The FICOM scrip witnessed a solid surge in the run up to the announcement. From a low of Rs 11.52
on 22 Feb 2006, the stock spurted to Rs 14.81 on 16 March 2006.
Balance Sheet:

PRE-Coromandel PRE-Ficom Post

200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
Share Capital 25.41 25.41 25.41 6.19 6.19 6.19 25.58 27.98 27.98 28.05
R&S 312.4 359.82 412.58 18.77 17.66 2.7 486.86 766.45 1099.16 1406.93
Networth 337.81 385.23 437.99 24.96 23.85 8.89 512.44 794.43 1127.14 1434.98

Minority Interest 0 0 0 0 0 0 0 0 0 0

L.T. Debt 295.59 267.91 426.26 29.22 34.26 29.71 548.96 1042.88 1719.9 1917.8
S.T. Debt 0 0 0 0 0 0 0 0 0 0
DTL 87.15 86.93 75.16 2.46 1.09 0 71.34 82.47 79.47 85.47

Current Liabilities 285.81 316.53 555.91 15.22 18.49 14.94 597.5 835.61 1755.02 952.35

Total Liabilities 1006.36 1056.6 1495.32 71.86 77.69 53.54 1730.24 2755.39 4681.53 4390.6

Gross Block 647.57 671.92 683.38 82.93 83.15 83.06 734.93 1136.77 1232.77 1312.87
Accumulated Depreciation 263.24 294.41 319.71 37.18 40.59 53.56 352.52 401.38 440.94 495.56
Net Block 384.33 377.51 363.67 45.75 42.56 29.5 382.41 735.39 791.83 817.31

Investments 136.17 134.88 161.81 0.34 0.78 0.69 174.08 72.31 163.31 211.05

Cash 2.9 32.84 24.33 1.78 1.54 1.09 169.49 107.21 341.49 809.86
Current Assets 482.96 511.37 945.51 23.99 30.91 22.26 1004.26 1840.48 3384.9 2552.38
Provision for Bad Debt 0 0 0 0 0 0 0 0 0 0
Misc. Written off 0 0 0 0 0 0 0 0 0 0

Total Assets 1006.36 1056.6 1495.32 71.86 75.79 53.54 1730.24 2755.39 4681.53 4390.6
Check 0 0 0 0 1.9 0 0 0 0 0

Non Cash Working Capital 197.15 194.84 389.6 8.77 12.42 7.32 406.76 1004.87 1629.88 1600.03
Profit and Loss:
PRE-Coromandel PRE-Ficom Post
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
Net Sales 1240.4 1554.39 1877.27 57.47 63.4 50.31 2095.25 3794.76 9419.05 6452.77
Sales Growth 25% 21% 10% -21% 9% 81% 148% -31%
Other Income/(Loss) -16.59 9.8 143.68 -2.29 2.61 4.18 25.97 -22.93 598.16 -21.57
COGS 935.97 1258.42 1666.7 45.4 53.64 45.34 1695.15 3021.3 8584.06 5085.39
Gross Profit 287.84 305.77 354.25 9.78 12.37 9.15 426.07 750.53 1433.15 1345.81
SAE 155.7 159.08 177.8 5.09 7.61 18.07 207.95 295.15 484.12 502.77
EBITDA 132.14 146.69 176.45 4.69 4.76 -8.92 218.12 455.38 949.03 843.04
Depreciation 32.64 35.1 37.08 3.62 3.48 3.39 39.84 52.13 56.13 59.23
EBIT 99.5 111.59 139.37 1.07 1.28 -12.31 178.28 403.25 892.9 783.81
Interest 28.72 18.73 24.01 4.99 3.75 3.27 31.93 69.83 84.72 75.37
Interest Rate (as % of Debt) 9.7% 6.6% 6.9% 17.1% 11.8% 10.2% 5.8% 8.8% 6.1% 4.1%
EBT 70.78 92.86 115.36 -3.92 -2.47 -15.58 146.35 333.42 808.18 708.44
Tax 27.67 23.67 31.81 -1.83 -1.36 -0.62 45.61 123.66 311.8 240.24
PAT 43.11 69.19 83.55 -2.09 -1.11 -14.96 100.74 209.76 496.38 468.2

Dividend Paid 16.51 19.05 21.6 0 0 0 25.57 48.96 139.9 140.26

Others 3.16 14.23 17.12 11.41 13.5 14.61 30.34 113.26 303.46 179.08

Carried down to BS 23.44 35.91 44.83 -13.5 -14.61 -29.57 44.83 47.54 53.02 148.86

NoPat Calculations:
PRE-Coromandel PRE-Ficom Post
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
EBIT 99.5 111.59 139.37 1.07 1.28 -12.31 178.28 403.25 892.9 783.81
Add: Key Adjustments 0 0 0 0 0 0 0 0 0 0
NOP 99.5 111.59 139.37 1.07 1.28 -12.31 178.28 403.25 892.9 783.81
Subtract: Cash Operating Taxes 14.71 37.61 60.43 4.02 3.99 0.74 71.80 157.76 369.14 279.88
NOPAT 84.79 73.98 78.94 -2.95 -2.71 -13.05 106.48 245.49 523.76 503.93

Subtract: Cash Operating Tax

Reported Income Tax 27.67 23.67 31.81 -1.83 -1.36 -0.62 45.61 123.66 311.8 240.24
Sub: Increase in DTL 36.95 -0.22 -11.77 -1.83 -1.37 -1.09 -3.82 11.13 -3 6

Add: Tax Subsidy on Deductible Expense 23.99 13.72 16.85 4.02 3.98 0.27 22.37 45.23296 54.34065 45.64438
Net Interest Expense 28.72 18.73 24.01 4.99 3.75 3.27 31.93 69.83 84.72 75.37
Operating Lease 0 0 0 0 0 0 0 0 0 0
Impairments 32.64 35.1 37.08 3.62 3.48 3.39 39.84 52.13 56.13 59.23

Tax Rate 39% 25% 28% 47% 55% 4% 31% 37% 39% 34%

Net 14.71 37.61 60.43 4.02 3.99 0.74 71.80 157.76 369.14 279.88
Capital:
PRE-Coromandel PRE-Ficom Post
Invested Capital 200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
Equity 337.81 385.23 437.99 24.96 23.85 8.89 512.44 794.43 1127.14 1434.98
Debt 295.59 267.91 426.26 29.22 34.26 29.71 548.96 1042.88 1719.9 1917.8
DTL 87.15 86.93 75.16 2.46 1.09 0 71.34 82.47 79.47 85.47
Minority Interest 0 0 0 0 0 0 0 0 0 0

Total 720.55 740.07 939.41 56.64 59.2 38.6 1132.74 1919.78 2926.51 3438.25

Off-Balance Sheet Adjustments

R&D
Operating Leases

Net 720.55 740.07 939.41 56.64 59.2 38.6 1132.74 1919.78 2926.51 3438.25

Method 2:
Total Assets 1006.36 1056.6 1495.32 71.86 77.69 53.54 1730.24 2755.39 4681.53 4390.6
NIBCLS 285.81 316.53 555.91 15.22 18.49 14.94 597.5 835.61 1755.02 952.35

Total 720.55 740.07 939.41 56.64 59.2 38.6 1132.74 1919.78 2926.51 3438.25

Check 0 0 0 0 0 0 0 0 0 0

WACC Calculations:
PRE-Coromandel PRE-Ficom Post
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
Interest 28.72 18.73 24.01 4.99 3.75 3.27 31.93 69.83 84.72 75.37
Avg. Debt Outstanding 295.59 281.75 347.085 29.22 31.74 31.985 548.96 795.92 1381.39 1818.85
Kd 9.7% 6.6% 6.9% 17.1% 11.8% 10.2% 5.8% 8.8% 6.1% 4.1%
Tax Rate 39.1% 25.5% 27.6% 46.7% 55.1% 4.0% 31.2% 37.1% 38.6% 33.9%
Kd(1-Tax) 5.9% 5.0% 5.0% 9.1% 5.3% 9.8% 4.0% 5.5% 3.8% 2.7%

Average Book Equity 337.81 361.52 411.61 24.96 24.405 16.37 512.44 653.435 960.785 1281.06
No. of Equity Shares 7,741,335.00 7,582,617.00 37,918,165.00 6,191,000.00 6,191,000.00 6,191,000.00 37,918,165.00 50,787,328.00 89,794,620.00 90,245,319.00
Market Price 21.61 41.22 95.85 5.75 11.01 25.27 65.45 116.3 90.7 315.05
Market Cap (in cr.) 16.73 31.26 363.45 3.56 6.82 15.64 248.17 590.66 814.44 2,843.18
Average Market CAP 16.73 23.99 197.35 3.56 5.19 11.23 248.17 419.42 702.55 1,828.81

Debt % 94.64% 92.15% 63.75% 89.14% 85.95% 74.01% 68.87% 65.49% 66.29% 49.86%
Equity % 5.36% 7.85% 36.25% 10.86% 14.05% 25.99% 31.13% 34.51% 33.71% 50.14%

Cost of Equity 12% 12% 12% 12% 12% 12% 12% 12% 12% 12%

WACC 6.24% 5.51% 7.54% 9.42% 6.25% 10.38% 6.49% 7.76% 6.54% 7.38%
 Ratio:
Ratios PRE-Coromandel PRE-Ficom Post
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003
Employee Cost/Revenue 3.53% 2.95% 2.62% 5.97% 5.86% 8.69% 2.97% 2.50% 1.36% 2.50%
Power Cost/Revenue 5.00% 4.30% 3.80% 4.11% 5.83% 5.32% 4.31% 3.24% 1.60% 2.25%
SAE/Revenue 11.13% 7.95% 7.68% 5.22% 7.67% 5.53% 8.29% 6.13% 2.89% 6.33%

Operating Cost/Revenue 87.23% 89.52% 96.82% 86.18% 96.31% 111.34% 90.02% 86.42% 93.37% 84.86%

Interest Cost 9.72% 6.65% 6.92% 17.08% 11.81% 10.22% 5.82% 8.77% 6.13% 4.14%

NPM 3.48% 4.45% 4.45% -3.64% -1.75% -29.74% 4.81% 5.53% 5.27% 7.26%

Revenue Growth 25.31% 20.77% 10.32% -20.65% 8.70% 81.11% 148.21% -31.49%
PAT Growth 60.50% 20.75% -46.89% 1247.75% 46.87% 108.22% 136.64% -5.68%

Internal Liquidity

Current Ratio 1.70 1.72 1.74 1.69 1.76 1.56 1.96 2.33 2.12 3.53
Quick Ratio 1.01 1.12 1.03 1.17 1.13 0.96 1.29 1.30 1.36 2.56

Operating Efficiency Ratios

Total Asset Turnover 1.96 2.38 2.17 1.06 1.13 1.30 1.97 2.07 3.31 1.92
Net Fixed Asset Turnover 3.24 4.25 5.24 1.28 1.52 1.92 5.65 5.24 12.33 8.03
Equity Turnover 0.85 0.79 0.81 0.39 0.52 1.03 0.83 0.94 1.27 0.94

Operating Profitability Ratios

Gross Profit Margin 23.21% 19.67% 18.87% 17.02% 19.51% 18.19% 20.34% 19.78% 15.22% 20.86%
Operating Profit Margin 8.02% 7.18% 7.42% 1.86% 2.02% -24.47% 8.51% 10.63% 9.48% 12.15%
Net Profit Margin 3.48% 4.45% 4.45% -3.64% -1.75% -29.74% 4.81% 5.53% 5.27% 7.26%
ROE 12.76% 17.96% 19.08% -8.37% -4.65% -168.28% 19.66% 26.40% 44.04% 32.63%
ROC 8.41% 11.23% 10.74% 1.01% 0.97% -30.62% 10.83% 13.21% 18.74% 15.07%
Reinvestment ratio / ploughback ratio 61.70% 72.47% 74.15% 100.00% 100.00% 100.00% 74.62% 76.66% 71.82% 70.04%

P/E
EPS 55.69 91.25 22.03 -3.38 -1.79 -24.16 26.57 41.30 55.28 51.88
P/E 0.39 0.45 4.35 -1.70 -6.14 -1.05 2.46 2.82 1.64 6.07
Dividend Payout Ratio 38.30% 27.53% 25.85% 0.00% 0.00% 0.00% 25.38% 23.34% 28.18% 29.96%
Ratio Analysis:

 Coromandel has been able to keep its basic Expense ratios like Employee Cost to Revenue,
SAE to Revenue below the industry average showing the management has been able to
synchronize the workings of company efficiently by keeping the costs low.

 The Current ratio is mainly used to give an idea of the company's ability to pay back its short-
term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).
The company has been able to improve its current ratio consistently post-merger and is thus
able to manage its short term liabilities and cash more efficiently.

 The Asset turnover ratio of Coromandel has been low in year subsequent to the merger due
to large cash balances in their books which has rose to the extent of almost 19% of the total
assets. However, the fixed assed turnover ratio has constantly improved along with increase
in fixed assets which reflects the companies’ effectiveness in using the investment in fixed
assets to generate revenues.

 The Profitability ratios have increased marginally over the years post years which is one of
the highest in the Industry.

 The EPS and the Book value of Coromandel are the highest in the industry and it increased
exponentially post-merger due to increase in profits and revenues due to investment in
Capex and increasing its capacities. The Company achieved a sale volume of 21.62 lakh MT
(including 1.19 Lakh MT of imported DAP and 0.55 lakh MT of imported MOP).
EVA:
PRE-Coromandel PRE-Ficom Post
200403 200503 200603 200403 200503 200603 200703 200803 200903 201003

NOPAT 84.79 73.98 78.94 -2.95 -2.71 -13.05 106.48 245.49 523.76 503.93

WACC 6.24% 5.51% 7.54% 9.42% 6.25% 10.38% 6.49% 7.76% 6.54% 7.38%

INVESTED CAPITAL 720.55 740.07 939.41 56.64 59.20 38.60 1,132.74 1,919.78 2,926.51 3,438.25

EVA 39.80 33.23 8.08 -8.28 -6.41 -17.05 32.93 96.59 332.29 250.12

EVA/NoPat 46.94% 44.92% 10.23% 280.89% 236.47% 130.73% 30.93% 39.35% 63.44% 49.63%

EVA Analysis

The EVA Post merger has been positive throughout and has increased exponentially in the post-
merger years of 2008, 09, 10. However the EVA has been reduced to Rs. 8.08 crs. from Rs. 33.23 crs.
in the year of merger. The reason for this is increase in current assets (mostly RM, WIP and Stores
and Spares) which increased from Rs. 361 crs to Rs. 702.8 crs. The positivity of the Eva has increased
and for checking this, I have taken ratio of Eva to nopat as the indicator.

Post-merger:

In the year of merger, the EVA of the company has increased exponentially due to increase in Nopat
which grew by around 35% over the previous year. Also the key expense ratios have remained
almost stable over the years post-merger thus further helping the EVA to increase. The company
has consistently increased long term debt following post-merger. The long term debt increased by
30%, 90% and 65% in the years 2007, 2008 and 2009 respectively. It was used for new initiatives
including projects taken up in different fertilizer units of the Company to increase the instantaneous
capacity and productivity were completed during the year. This can be attributed to operations in
Jammu which were stabilized and production in Ranipet and Thane plants recorded new highs.

The Company also started marketing a wide range of specialty nutrient products through the retail
trade across various States in the Country. A new business model was created to procure, pack,
manufacture, promote and market high value; low volume specialties all over India post the merger.
This also added to overall turnover as the contribution of the Specialty Nutrients business has
achieved significant growth in the past few years.
Conclusion:

Post-merger the company is generating a positive EVA from the year 2007 and has been positive and
following an increasing trend till last available data. Also post-merger the expense ratios have
increased marginally as against PAT which has grown at 46.87%, 108.22% and 136.64% and 2007,
2008 and 2009 respectively. This also highlights the management’s role in keeping the costs under
control while increasing the revenue post-merger. Also the merger has given the company the
advantage of the geographical expansion and achieve it some sort of integrated business model.

Thus we can say that the deal in all was a success.