Marriage Of Convenience
The swap ratio fixed at 3:1, i.e. one share of Philips Carbon for every three shares of Cacil, is more or less in accordance with the current market price of the two scrips. Philips Carbon currently quotes at Rs 40.75 discounting its current EPS of Rs 11.39 by 3.5 times, whereas Cacil is traded at Rs 15.75 and commands a marginally lower P/E of 2.54 on its EPS of Rs 6.18. On the basis of the book-value Philips Carbon is better placed at Rs 59.06 in comparison with Cacil at Rs 11.07 while debt equity ratios are comparable at 1.12:1- Philips Carbon and 1.29:1- Cacil.
The merger, that will lead to a hike in the equity of Philips Carbon by 32 per cent to Rs 17.73 crore, and a growth in its volume by 26 per cent, will improve the company's bottomline by an whooping 52 per cent. This is on account of Cacil's impressive GPM at 15.2 per cent in comparison with that of Philips Carbon at 11.4 per cent. In addition, while its capacity will improve from the present level of 80,000 tpa to 1.20 lakh tpa, the market share will rise from 51 per cent to 61.7 per cent leaving behind the second player, Cabot India, with a market share of 21.5 per cent.
Philips Carbon, which has strong presence in the eastern region, is likely to make inroads into the high-potential southern market and improve margins through substantial reduction in freight charges. The merger has already done wonders to the performance of Cacil, which had suffered due to a funds crunch and a BIFR case two years ago. The strategic alliance with Philips Carbon and infusion of funds in the past has enabled Cacil to make a successful turnaround. In 1996-97, Cacil wiped out all its accumulated losses and ended up with a reserve of Rs 1.40 crore. The company capped it with a dividend of 15 per cent.
Its strong reserve position at Rs 65.70 crore will prove to be handy in funding Cacil's Rs 20-crore expansion programme that will take its capacity to 54,000 tpa by December end. The year ahead will be tough for the merged entity as the slash in the import duty, from 40 per cent to 30 per cent, under the Union budget 1997-98 will lead to increased imports and a squeeze in margins. Philips Carbon will witness volume-led growth through its expansion programme. This coupled with the merger of Cacil and Gujarat Carbon will better capacity from 80,000 tpa to 1.89 lakh tpa. With production centres at the three major regions - eastern, western and southern, it will surely have an edge in terms of proximity to the end-user.