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Saroj Poddar weighs option to manage MCF operations with Vijay Mallya

KOLKATA/MUMBAI: Saroj Kumar Poddar, the soft-spoken chairman of the Kolkata-based Adventz group, is discussing an option to jointly manage the operations ofMangalore Chemicals & Fertilizers (MCF) with the UB Group head honcho Vijay Mallyato thwart attempts by Deepak Fertilisers to wrest control of the Mangalore-basedfertiliser company. 

"We are examining various alternatives, including managing the company jointly," said Poddar. He met the 
UB Groupchairman in London last week mainly to explore the option of joint management or a possible buyout of the fertiliser company. The 68-year-old industrialist on Friday claimed to have the right of first refusal for Vijay Mallya's shares in the company. "We had entered into an agreement two years ago for the same. It is a legal document and we will honour our commitment," Poddar added. 

He has engaged an internal strategy team, led by his trusted lieutenant and Zuari Agro MD
Suresh Krishnan, to draw up different options to gain management control of MCF. "Acquisition of MCF by Zuari is a strategic fit as both the companies have facilities in Goa and a similar product profile," said Poddar.

Control over MCF will strengthen Zuari's position in Karnataka and Maharashtra. The only sore point could be the company's huge debts. However, if the cash in the company's books, as well as advances to the government (in the form of subsidy) is adjusted, the net debt drops and thus the valuations become attractive. Poddar has been managing the 



KK Birla group






 companies for long. In August 2008, after the demise of his father-in-law, he slipped into the role of chairman. Since then, Poddar has been striving to take the $3-billion (Rs 18,000 crore) Adventz Group's businesses forward. 

In 2011, Poddar rebranded the companies and brought it under the umbrella brand Adventz Group. The group's major businesses are fertiliser and infrastructure. Around 70 per cent of the group's revenues come from these. It was with an eye on long-term gain in the fertiliser business that Poddar had invested in Mallya's MCF. Zuari Fertilisers and Chemicals, the group's fertiliser arm, has been eyeing inorganic growth for quite some time. It had initiated talks with Nagarjuna Fertilisers and Chemical, which didn't work out. 

Poddar had acquired over 6.5 per cent stake in the company. But later Nagarjuna Fertilisers went through restructuring and as a consequence the group's unlisted firms had to be merged with it taking the promoters' stake to 51 per cent. It was 38 per cent before the consolidation of the business, says the analyst. This made the takeover attempt futile. "MCF is an emerging situation. We cannot predict how it evolves. Our strategy team is constantly monitoring the situation and fine-tuning options," said a person close to the Adventz Group's strategy team. 

Adventz group is owned and managed by Poddar. Though Adventz Group scripted a friendly takeover plan and group company Zuari Fertilisers bought 10 per cent in MCF in April, the Pune-based Deepak Fertilisers sprang a surprise on July 4 by mopping up 24.5 per cent. The corporate battle is poised for a close finish as Vijay Mallya, who still has the management control with 20.99 per cent stake, is keeping his cards close to his chest. 

Investment bankers say that despite Poddar's claim of first right of refusal over MCF, Mallya will simultaneously open dialogue with Deepak Fertilisers. "Mallya takes a long time. He will examine all options. It took him several months to strike 
Diageo deal. Though MCF is not a core business, he does not want to lose control of MCF, which is a good asset under the UB Group. It is difficult to win a hostile takeover as chances of getting 51 per cent are very slim," said a banker, who had worked with Mallya on some transactions in the past. 

The open offer for MCF may prove costly as the company's share price shot up 60 per cent in the past one month ever since lenders to 
Kingfisher Airlines started offloading shares. "The open offer price ranging between Rs 70 andRs 80 per share will surely make the acquisition unviable keeping in mind MCF's huge debt," said an expert. 

FIIs, who hold 8.61 per cent stake in MCF, will play a crucial role. Deepak Fertilisers appears better placed to win the ongoing battle for ownership of MCF considering the limited leverage on its balance sheet as compared to Zuari Argo. As at end March, 2013, Deepak Fertiliser's debt-equity ratio was 0.71 on a standalone basis. Net of cash, the ratio is 0.64. 

In comparison, Zuari Agro Chemicals' debt-equity ratio was 3.7 on standalone basis and 3.5 net of cash. Zuari is a wholly-owned subsidiary of Zuari Agro Chemicals. "Zuari Agro's leverage is primarily due to delay in subsidy payment by the government. The entire loan component represents government receivables. There are no long-term capital expenditure," said a Zuari Group executive, who does not want to be quoted. 

Zuari Global — a separately listed company, earlier known as 
Zuari Industries and the principal promoter entity for the Zuari Group of Companies — holds 20 per cent stake in Zuari Agro Chemicals. Zuari Global is debt-free with net worth of nearly Rs 600 crore.