Marginal Merger by Aditya Birla Chemicals With Grasim Industries

Published By : 17 Feb 2015 | Published By : QYRESEARCH

Aditya Birla Chemical’s merger with Grasim Industries consolidates the latter’s position within the segment of caustic soda.

Post merger Grasim will be the biggest producer of caustic soda in the Indian domestic market. The company will have a market share of 23 per cent which is strong in comparison to its before the merger share of 14 per cent.

Grasim’s total caustic soda production will go up to 745 kilo tons, which is up by 293 kilo tons to its former production rate.

Grasim also operates in the VSF segment outside of caustic soda. There is currently an overcapacity of VSF in China, which makes the caustic soda segment more stable for Grasim than VSF. This could be perceived as a potential disadvantage for the company, as China is already one of the largest buyers of VSF in textiles raw materials. Due to this, Grasim’s realization from its VSF business has been slow.

On the other hand, caustic soda is used across a wide array of industries in India including soaps and detergents, pulp and paper, and textiles. This could provide Grasim’s chemical business some stability.

Analysts, after comparing the financials of the two players, said that the merger could possibly be margin accretive. In the nine months that led to December 2014, Aditya Birla Chemicals has recorded an operating margin of 23 per cent on the sales of Rs. 811 crore in contrast to the chemical division of Grasim and its 18 per cent operating margin on sales of Rs. 1,271 crore. The average operating margin of the combination could yield out to be 20.5 per cent.
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