The Tata group is considering merging pesticide-maker Rallis India, one of the oldest companies in India, with its agro-chemicals flagship Tata Chemicals.
Two sources familiar with the developments said the merger was under discussion but the plan would take some time to frame since both companies are listed on Indian markets.
Rallis and Tata Chemicals have some common lines of businesses, offering synergies in terms of complementary products.
The merger targets a 15 to 20 per cent cut in Rallis' raw material, employee, logistics and other operational costs, the sources added.
Responding to a query on the merger, Tata Chemicals said it has made an offer to increase its equity holding in Rallis India by buying equity shares from other qualifying promoter-group companies through an inter-se transfer of shares.
“The transaction has not yet been consummated, so we cannot speak about it now,” the company said.
On August 12, the Tata Chemicals board approved a proposal to buy up to 35.8 per cent in Rallis through share transfers from promoter group companies for a price not exceeding Rs 850 a share. The cost of acquisition would be about Rs 320 to Rs 360 crore, analysts said.
Tata Chemicals’ holding in Rallis will rise to 45.2 per cent from 9.4 per cent after the purchase of shares from group companies, including Tata Tea (24.52 per cent), Tata Sons (7.52 per cent), Tata Investment Corporation (2.42 per cent) and Ewart Investments (1.35 per cent).
“The transfer of shares to Tata Chemicals is a harbinger for a merger that may take place in the near future,” said another source close to the developments.
Tata Chemicals, which generates over 40 per cent of its revenue from fertilisers, has annual sales of Rs 12,200 crore. It also makes inorganic chemicals and fresh farm produce through a joint venture. The company's urea plant at Babrala in Uttar Pradesh has an installed annual capacity of 8,64,600 tonnes and contributes nearly 12 per cent of the urea produced by the country’s private sector.
Rallis, which recorded sales of Rs 856 crore in the last financial year, is focusing on crop protection which includes making pesticides, insecticides, seeds, micro nutrients. It also manufactured agrochemicals under contract for multinationals. Rallis has been the sole distributor for Tata Chemicals' fertilisers in its main markets in the north and north-east regions.
In turn, the Tata Chemicals-promoted Innovation Centre in Pune acts as a major research and development centre for Rallis. A few years ago, Rallis sold its Bangalore research and development unit to Advinus Therapeutics, another Tata group-promoted drug discovery company.
A recent Emkay Research report said “Tata Chemicals’ fertiliser business and Rallis cater to the same consumers which are farmers.... The combined entity can offer a more diversified product basket to farmers and boost overall revenues."
To strengthen its agri portfolio, Tata Chemicals acquired the agri-nutrient firm Hind Lever Chemicals. It also holds 33 per cent in Morocco-based Indo Maroc Phosphore SA, which makes phosphoric acid, a key fertiliser input.
Basic chemicals, fertiliser and pesticides constitute 5 per cent of the $60 billion Tata Group.
The Tata Chemicals share fell 0.47 per cent to Rs 244 on Tuesday, while Rallis was up 0.7 per cent to Rs 730.