The Tata-controlled Forbes Gokak Group has divested its entire 29% holding in Goodlass Nerolac Paints Limited to Kansai Paints - the company's co-promoter and foreign collaborator.
Goodlass Nerolac with revenues of Rs 5.3 bn in FY99 is the market leader in the industrial paints segment of the Indian paint industry. The company, promoted by the Tatas and Kansai Paints of Japan (amongst the top 5 producers of paint in the world), was amongst the first to identify the immense potential in the industrial paints business. While other paint companies built up capacities for decorative paints, Goodlass concentrated it energies towards building up a massive foundation for industrial paints. Its relationship with Kansai not only gave it access to world-class technologies, but also helped it acquire sizeable contracts from Indo-Japanese companies. For example, Kansai is the single largest supplier of paints to Suzuki in Japan. Hence when Maruti (a Suzuki-promoted company) was looking for a paints supplier for its cars, Goodlass became an automatic choice. Today the company is the largest supplier of paints to auto manufacturers in India.
The business of industrial paints is one of high margins and low volumes and consumption is skewed towards automotive paints. The market is closely fought on technology as much as on price, which explains which all Indian companies have tied up with foreign collaborators for industrial paints.
The current divestment by Forbes has been done at a strike price of Rs 250, which is slightly higher than Goodlass' previous day's closing of Rs 248. The proposed transfer was done in accordance with the original agreement between the partners giving each other the first right of refusal in case of divestment by either. The move will not attract the provisions of SEBI's takeover code as the deal has been conducted between the promoters in a frendly manner and does not represent a hostile takeover.
For the Forbes Group, which has interests in manufacturing and service industry, the move represents a divestment from unrelated businesses in line with the Group's policy. For the Kansai Group, the transaction worth Rs 1,090 m will take its holding in the company to around 65% and allow it better management control over operations.
For Goodlass Nerolac itself, the deal represents a graduation to MNC status, which will definitely help in improving valuations. With the automobile industry in India on a growth path, and newer manufacturers bringing in their latest models into the country, the market for industrial paints looks a pretty picture. Besides, the recent rise in industrial production and greater awareness for protecting industrial assets from decay and increased use of protective coatings are all bound to translate into higher profitability for industrial paint manufacturers. With its infrastructure for industrial paints in place and given its reputation in the market, the company is all set to capitalise on the growth opportunities likely to arise once the Indian economy gains pace.
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