SRF buys SRF Polymers for Rs 150 cr

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SRF buys SRF Polymers for Rs 150 cr

On December 16, the SRF Board approved buying two businesses of SRF Polymers for Rs 151 crore and this news has got away because of the Satyam fiasco. FY08 EBIDTA made by both these businesses is a loss of Rs 1.7 crore and FY08 net loss of nearly Rs 14 crore.

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SRF has bought two businesses of SRF Polymers for over Rs 150 crore. CNBC-TV18's Varinder Bansal finds out what does this fine print include or really layout in terms of the deal format.

On December 16, the SRF Board approved buying two businesses of SRF Polymers for Rs 151 crore and this news has got away because of the Satyam fiasco. Very importantly, some of the concerns coming out are that they paid Rs 150 crore for the two businesses which are the engineering plastic business and the yarn business. FY08 EBIDTA that both these businesses have made is a loss of Rs 1.7 crore and FY08 net loss of nearly Rs 14 crore.

Thus, the big question now among the business fraternity is that why does SRF have to pay such huge amount for businesses that are loss making. Also, the book value of both the businesses is nearly Rs100 crore, so in this kind of a market why has one to pay 1.5 times of the book value.

The investor fraternity is also concerned about the fact that SRF Polymers needed money. SRF Polymers hold 44% stake in SRF, now SRF Polymers have pledged equity in SRF with some of the financial investors. The Bombay Stock Exchange (BSE) filing also suggests that around 18% equity has been pledged with Kotak Mahindra Prime and Cholamandalam DBS Finance. Hence, the BSE filing suggests that there is 18% and on October 25, it was given to Kotak Mahindra Prime. The latest filing for May is for Cholamandalam DBS Finance. Hence, 18% is with them so SRF Polymers needed money because this pledging has been done since the beginning of 2008 which has seen the price of the stock going down from around Rs 200 to Rs 70-80, down nearly 60%.

Hence, a pressure is building up on SRF Polymers to either pay back the money or the margin calls will be executed. So, the money has been simply transferred from SRF to SRF Polymers. This is something which is going into the markets. Also, SRF does not have huge cash on the books, so the company has to go ahead and raise debt to pay this money to SRF Polymers for the deal value of Rs 150 crore.

Another important thing is that the valuations for this deal has been conducted by two important institutes--PWC from the seller side and KPMG India from the buyer side. CNBC-TV18 had a word with the management and with the spokesperson of the company. He clearly said that the reason for the deal was to capitalize on the engineering and plastic business, as SRF Polymers would require resources to grow. He also mentioned that there were huge deals coming in their way for acquiring the Engineering Plastics Business (EPB) division, which was the engineering and product division.