The Hindu Business Line : Well-timed to capitalise on price trends

Nirma’s decision to acquire US-based natural soda ash producer – Searles Valley Mineral Operations (SVMA), may help the company bring into its fold sizeable soda ash manufacturing capacities, at a time when global demand and pricing environment for soda ash are quite favourable. SVMA’s 1.9 million tonne capacities, access to mineral reserves estimated at 600 mt, its captive power plant and ownership of railroad and port facilities to transport its products, all suggest significant cost advantages to its operations that could help an acquirer such as Nirma.

With buoyant demand and relatively tight supply conditions for soda ash in the global markets, the acquisition could help the company scale up its production levels to capitalise on the strong price and demand scenario. However, on the flip side, Nirma has not disclosed the consideration paid for the acquisition. A sizeable debt burden to fund the acquisition may not be well received by the markets at a time when Nirma’s earnings have been consistently posting declines over the past few quarters. The acquisition would also significantly tilt Nirma’s product mix in favour of the chemicals business. Given that stock market valuations for players engaged in chemical businesses are in the low double digits, much lower than those enjoyed by fast-moving consumer goods (FMCG) companies, the move may not materially help valuations for the Nirma stock over the medium-term.

However, the downside may be limited, given that the stock is already trading at a sizeable discount to other FMCG players.

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