Revenue Estimate From Acquisition Of Wavin's Indian Piping Biz Is ₹700 Cr/Yr: Supreme Industries

Summary

In this interview, Mr. MP Taparia, Managing Director of Supreme Industries, discusses the company's acquisition of Wen Industries' Indian piping business for $30 million. He explains the expected revenue and profitability, with a focus on achieving 65-70% capacity utilization in the acquired plants. Mr. Taparia highlights the strategic benefits, including access to exclusive technology and expansion plans in Madhya Pradesh and Rajasthan. The company plans to continue using the Wen and Vectus brands for a period, eventually transitioning to the Supreme brand. He also touches on market trends, reduced polymer prices, and growth projections for FY25.

Takeaways

• 😀 Supreme Industries signed a memorandum of understanding with Wen Industries to acquire their Indian piping business for $30 million.
• 😀 The acquired business is expected to generate a revenue of around ₹700 crores per year, with an initial loss due to over-expenditures.
• 😀 Supreme Industries aims to achieve 65-70% capacity utilization of the acquired business, leveraging its existing distribution network.
• 😀 The acquisition includes three facilities: one in Banmore, one in Hyderabad, and one in Nimana. Two of these plants are leased, while one is owned by the company.
• 😀 The net debt of the acquired company is nil, with ₹350 crore expected in working capital and incidental expenses after acquisition.
• 😀 Supreme Industries' main rationale for acquiring the company was to gain exclusive access to its technology, which can be used in India and for export purposes.
• 😀 The company plans to expand the capacity of its plants in Madhya Pradesh and Rajasthan once the acquisition is complete.
• 😀 The company intends to maintain the Wen and Vectus brands for the short term, but will eventually rebrand products under the Supreme brand after a transition period of six months.
• 😀 An agreement for technology sharing has been made with Wen Industries for a period of six years, with annual payments based on technology usage.
• 😀 Supreme Industries' guidance for FY25 volume growth has been reduced from 14% to 12%, but there is optimism that this target will still be met due to falling polymer prices and improved demand.

Q & A

What was the key business deal discussed in the interview?

The key business deal discussed was the acquisition of the Indian piping business of Wen Industries by Supreme Industries for approximately $30 million.

What is the reported revenue of the acquired business and what portion will be sold?

The reported revenue of the acquired business is approximately 1,000 crores, with the tanks business being sold to Vectus promoters.

What is the expected revenue run rate for the acquired business after the transaction?

The expected revenue run rate for the acquired business, once fully operational, is around 700 crores per year.

What is the target capacity utilization for the acquired business?

The target capacity utilization for the acquired business is 65-70%, which the company is confident in achieving based on its distribution network and experience.

How many facilities are part of the acquisition and what is the ownership structure?

The acquisition includes three facilities: one in Banmore, one in Hyderabad, and one in Nimana. Of these, one plant is fully owned by the company, and two plants are leased.

What is the financial structure of the leased plants?

The two leased plants involve a long-term lease agreement with an annual payment of around 5 crore rupees. The value of the leased properties was considered in the acquisition.

What is the net debt of the acquired company?

The acquired company has no debt, but there is a networking capital requirement and incidental expenses amounting to approximately 350 crores.

What other benefits did Supreme Industries acquire along with the business?

Apart from the manufacturing capabilities and geographies, Supreme Industries acquired exclusive access to Wen Industries' technology, which will allow them to expand into other countries and improve water management solutions in India.

Will there be any expansion at the plants after the acquisition?

Yes, Supreme Industries plans to expand capacity at the plants in Madhya Pradesh and Rajasthan after taking full control of the business starting from July.

How will the acquired brands be handled post-acquisition?

The company will continue to sell products under the Wen and Vectus brands for a period, but after six months, Supreme Industries will shift to using its own brand for products manufactured under the acquired technology.

How has Supreme Industries' guidance for FY 25 volume growth been adjusted?

Supreme Industries has revised its volume growth guidance for FY 25 from 14% to 12%. The management is optimistic about meeting this target, particularly due to the reduction in polymer prices.