Trust Chemicals buy to help Sanmar save Rs400 crore yearly

It is cheaper to produce and procure the chemicals from Egypt because that country has among the lowest costs of power in the world, at 2 cents (90 paise) a unit, against Rs4 per unit in Tamil Nadu

Abhinav Ramnarayan

Sanmar Group, a Rs1,596-crore conglomerate that manufactures PVC (polyvinyl chloride) resin products, said it has acquired Egypt-based Trust Chemicals Industries (TCI) for $300 million (Rs1,290 crore). The puchase would also result in a cost saving, arising from cheaper access to chemicals, it added.

The group would save about Rs400 crore a year in the production of PVC, said N. Sankar, the chairman of Sanmar.

The purchase will give Sanmar a plant that manufactures caustic soda and vinyl chloride monomer, industrial chemicals used in the production of PVC. Prior to the acquisition, the company imported a part of its requirements at international market prices, while the remainder was made at its plant in India. The company declined to give details of how much it imported and at what rate.

It is cheaper to produce and procure the chemicals from Egypt because that country has among the lowest costs of power in the world, at 2 cents (90 paise) per unit, as opposed to Rs4 per unit in Tamil Nadu.

The production of both caustic soda and vinyl chloride monomer are energy intensive—over 60% of the cost is in energy—said Vijay Sankar, the group's deputy chairman.

The acquisition would also help the group enter the North African market. It is planning to set up a PVC manufacturing unit with a capacity of two lakh tonnes per annum (tpa) in Egypt by 2009. After this, about half of TCI's production capacity—2.75 lakh tpa of caustic soda and four lakh tpa of vinyl chloride monomer—would be shipped to Sanmar's plant in India, and the other half to the plant in Egypt.

Including the cost of the acquisition, the Sanmar Group will invest a total of $550 million in Egypt over the next two years. The $300 million for the purchase has been raised through borrowings from ICICI Bank, and the group is considering different ways, including a bond offering in the US, to raise the remaining $250 million.

The group also said it took over a foundry unit in Erla, Germany, for a sum of $26 million, in January this year. The foundry, Eisenwerk Erla GmbH, posted a turnover of €80 million last year selling turbo-charger housings for automobiles.

Turbo-chargers are air compressors in an engine that increase or boost the amount of fuel that can be burned in the cylinder.