Pidilite To Acquire Araldite Adhesive Maker For Rs 2,100 Crore
Shares of Pidilite Industries Ltd. posted the highest intraday jump in three months after the maker of Fevicol adhesive signed a pact to acquire Huntsman’s India unit, which makes Araldite.
Pidilite has entered into an agreement to acquire a 100% stake in Huntsman Advanced Materials Solutions Pvt.—a subsidiary of Huntsman Corp. that houses the company’s consumer adhesive business—for Rs 2,100 crore, according to an exchange filing.
The transaction, it said, doesn’t require any governmental or regulatory approval and is likely to be completed in the next few days, subject to certain pre-conditions being met prior to closing of the transaction.
Huntsman’s flagship brand ‘Araldite’ is the market leader in India among ‘epoxy adhesives’, especially used to join or bond metal surfaces. This is used by professional mechanics who repair machines, including automobiles and electrical equipment.
Under the terms of the agreement, Huntsman will receive about 90% of the cash consideration at closing and balance 10% under an earnout within 18 months if the business achieves sales revenue in line with 2019.
In 2019, business revenue for Huntsman Advanced Materials was about Rs 400 crore. In addition to the Indian sub-continent, the acquisition includes a trademark licence for Middle East, Africa and ASEAN countries.
Reacting to the development, shares of Pidilite surged close to 5% on Thursday, compared with a flat Nifty 50.
Analysts, too, view the deal as a positive in medium term.
“This acquisition fills a key gap in Pidilite’s strong adhesive portfolio, which was epoxy adhesives. Pidilite was the dominant market leader in all other segments of adhesives in India, except epoxy adhesives, before this acquisition,” Credit Suisse said in a note.
According to Dolat Capital, Huntsman Advanced Materials has strong presence in retail trade and will contribute to Pidilite’s existing strong portfolio. “With EV/sales of 5.2 times, the acquisition is in line with consumer peers. The acquisition is positive for Pidilite considering its strong cash position of Rs 1,900 crore. Huntsman Advanced Materials is likely to contribute 6-7% to Pidilite’s revenue,” said Sachin Bobade, vice president (research) at the brokerage.
Of the 21 analysts tracking Pidilite, six have a ‘buy’ rating, seven recommend a ‘hold’ and the rest suggests a ‘sell’. The average of Bloomberg consensus 12-month target price implies a downside of 13%. Shares of the company have gained 10.5% so far in October—the most since April.