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Deepak Fertilizers (DFPCL) has announced acquisition of 49% stake (by
investing INR608mn via fresh issue of equity shares), with management
control, in Gujarat-based Desai Fruits And Vegetables (DFV). Based on our
analysis of DFV’s financial and operational history, we believe the
proposed acquisition is synergic to DFPCL’s agri-business. However,
considering the current deteriorating state of DFV’s balance sheet, scaling
it up at a faster pace and making it profitable would be a challenge.
Key highlights of DFV acquisition
• Currently, DFV‘s shareholding comprises ~10% by the Desai family and the balance
by an European strategic investor consortium, with the former managing operations.
• DFPCL will infuse INR608mn by way of fresh issue of equity shares over the next 30
months and the money will be utilised primarily to build infrastructure.
• Post DFPCL’s acquisition, the shareholding would be 49% DFPCL, ~5% promoters and
balance with European investors.
• DFV is India’s largest banana exporter, catering primarily to Middle East and Ukraine.
• During FY11, DFV reported a net revenue of INR388mn (FY10: INR419mn) and net
loss of INR274mn (FY10: loss of INR79mn), leading to increase in accumulated losses
in BS to INR610mn. DFV attributed subdued FY11 performance to exceptionally
inclement weather and lower banana prices. It received fresh equity infusion of
INR250mn during FY11.
• DFPCL’s investment values DFV at INR1,241mn, translating into 3.2x FY11 sales.
Outlook and valuations: Scaling up is vital; maintain ‘BUY’
We believe DFPCL will harness its relationship with farmers, financial muscle and
corporate culture to leverage the competence of DFV in contract farming of bananas,
and the acquisition will be synergic to the former’s Mahadhan Saarrthie strategy. The
cash infusion by DFPCL will be utilised for scaling up DFV’s operations. However,
considering consistent losses at DFV for the past six years, we believe bringing in
synergies will be time consuming and at 3.2x FY11 sales, the acquisition cost prices in
future growth. We maintain ‘BUY’ recommendation on DFPCL with a target price of
INR220 per share based on 4.5x FY13E EV/EBIDTA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deepak Fertilizers (DFPCL) has announced acquisition of 49% stake (by
investing INR608mn via fresh issue of equity shares), with management
control, in Gujarat-based Desai Fruits And Vegetables (DFV). Based on our
analysis of DFV’s financial and operational history, we believe the
proposed acquisition is synergic to DFPCL’s agri-business. However,
considering the current deteriorating state of DFV’s balance sheet, scaling
it up at a faster pace and making it profitable would be a challenge.
Key highlights of DFV acquisition
• Currently, DFV‘s shareholding comprises ~10% by the Desai family and the balance
by an European strategic investor consortium, with the former managing operations.
• DFPCL will infuse INR608mn by way of fresh issue of equity shares over the next 30
months and the money will be utilised primarily to build infrastructure.
• Post DFPCL’s acquisition, the shareholding would be 49% DFPCL, ~5% promoters and
balance with European investors.
• DFV is India’s largest banana exporter, catering primarily to Middle East and Ukraine.
• During FY11, DFV reported a net revenue of INR388mn (FY10: INR419mn) and net
loss of INR274mn (FY10: loss of INR79mn), leading to increase in accumulated losses
in BS to INR610mn. DFV attributed subdued FY11 performance to exceptionally
inclement weather and lower banana prices. It received fresh equity infusion of
INR250mn during FY11.
• DFPCL’s investment values DFV at INR1,241mn, translating into 3.2x FY11 sales.
Outlook and valuations: Scaling up is vital; maintain ‘BUY’
We believe DFPCL will harness its relationship with farmers, financial muscle and
corporate culture to leverage the competence of DFV in contract farming of bananas,
and the acquisition will be synergic to the former’s Mahadhan Saarrthie strategy. The
cash infusion by DFPCL will be utilised for scaling up DFV’s operations. However,
considering consistent losses at DFV for the past six years, we believe bringing in
synergies will be time consuming and at 3.2x FY11 sales, the acquisition cost prices in
future growth. We maintain ‘BUY’ recommendation on DFPCL with a target price of
INR220 per share based on 4.5x FY13E EV/EBIDTA.
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