Motilal Oswal: PI Industries to derive synergies from Isagro Asia acquisition

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Published: September 17, 2019 2:45:04 AM

The proposed transaction is expected to be completed in 3QFY20, subject to finalisation of definitive agreements, customary closing conditions and regulatory approvals.

Motilal Oswal, PI Industries, Isagro Asia acquisition, synergies, domestic formulation businessPI will acquire 100% shareholding held by Isagro S.p.A in Isagro Asia, either directly or through a subsidiary.

PI Industries (PI) has acquired Isagro Asia for Rs 350 crore at a valuation of ~15x P/E FY19. PI should derive synergies from the acquisition in custom synthesis & manufacturing (CSM) and in the domestic formulation business. PI Industries has announced the acquisition from Isagro S.p.A. Isagro Asia operates in India and is engaged in contract manufacturing, local distribution and exports of agrochemicals.

PI will acquire 100% shareholding held by Isagro S.p.A in Isagro Asia, either directly or through a subsidiary. The deal has taken place at a valuation of ~15x P/E FY19. PI will fund the acquisition partly through internal accruals and partly through debt.

The proposed transaction is expected to be completed in 3QFY20, subject to finalisation of definitive agreements, customary closing conditions and regulatory approvals. The company remains confident of integrating Isagro Asia’s operations with itself in FY20.

Isagro Asia generated revenue of Rs 300 crore in FY19. Of this, 65% was contributed by the domestic formulation business and balance came in from the contract manufacturing business. In the domestic formulation business, Isagro sells in-licensing products, generics products and proprietary patent products. PI intends to leverage its distribution network and firm up its position in the domestic market by leveraging the complementary product portfolio of Isagro Asia.

In the contract manufacturing business (exports), Isagro Asia exports M Alcohol – a technical patented product to its parent company and also operates a small CSM business. Post-acquisition, PI intends to continue supplying M Alcohol to Isagro S.p.A. Isagro Asia has two technical lines that are currently operating at 30-40% utilisation, which PI intends to scale up post acquisition.

Moreover, PI will also derive synergies from the acquisition, such as having an adjacent manufacturing site and de-risking the supply chain of a few products. Management targets to inch up EBITDA margins of Isagro Asia from 11-12% in FY19 to ~20% level (similar to the EBITDA margin profile of PI) over the next two-three years.

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