Speciality chemicals firm Aquapharm Chemicals Pvt. Ltd is in talks with private equity (PE) investors to raise ₹5,000 crore through a stake sale, two people familiar with the development said. However, the company has not decided on the number of shares it would sell, they said, requesting anonymity.
Several speciality chemicals businesses have seen an uptick in investor interest, with global companies looking to diversify their supply chains as part of the China-plus-one strategy.
“Global private equity firms and strategic investors have been approached. It is still early days, and the final contours of the deal are yet to be ascertained,” said one of two people, seeking anonymity.
The company is working with US-based investment bank Stifel Financial Corp. for the proposed transaction, he added.
Both Aquapharm and Stifel Financial declined to comment on the matter.
Promoted by V.K. Mangwani, Pune-based Aquapharm manufactures speciality water treatment chemicals, such as phosphonates, polymers, biocides and pharmaceutical intermediaries, used by various industries, including detergents, paper, textile, pharmaceuticals, personal care, water treatment and leather manufacturers. It has manufacturing facilities in Pirangut and Mahad in Maharashtra, with an installed capacity of 70,000 tonnes. The Mangwani family owns a 50% stake, with Bimal and Sanjay Desai-led Desai family owning the rest. Both the shareholders will sell a part of their stakes, the person added.
“The size of the stake sale may vary. The Mangwani brothers will continue working at Aquapharm,” he added.
In fiscal 2018, Aquapharm acquired US’s Aquapharm Chemicals LLC, which has a facility to make speciality chemicals for the oil and gas sector. In March 2019, it also acquired Saudi Arabia-based Unique Solutions for Chemical Industries Co., which deals in desalination plants in Saudi Arabia and has major contracts with a government agency. Aquapharm’s consolidated net sales for FY22 stood at ₹1,616.4 crore, and earnings before interest taxes, depreciation and amortisation (Ebitda) was at ₹423.3 crore, according to VCCEdge, the data and analysis platform of VCCircle. In FY21, consolidated net sales stood at ₹919.8 crore on an Ebitda of ₹159 crore, VCCEdge showed.
“The company’s FY23 Ebitda is nearing ₹500 crore,” the person said.
“The company is in high growth sectors that are somewhat resilient to the overall tech slowdown. The deal is expected to get traction,” the second person said.
According to a Crisil report, the firm has established a presence in the global phosphonates sector and is witnessing steady demand. The group will benefit from the China-plus-one policy of customers, which will lead to moderate revenue growth in the medium term. Its operating efficiency has also improved, backed by a scale-up in operations and better performance of the US subsidiary, the rating agency said. Highlighting Aquapharm’s susceptibility to fluctuations in forex rates, raw material prices, economic downturns and global competition, Crisil analysts said it gets a majority of its revenue from exports to Europe and North America.
Considering that it imports around 60% of its raw material requirement, it benefits from a partial hedge, it added.
“Though open positions are hedged through forward contracts, the group remains susceptible to sharp changes in forex rates. Adverse forex fluctuations, along with dearer raw materials, have impacted profitability in the past,” it said.
As per a November 2022 report on the speciality chemicals industry in India by global consulting firm KPMG, the Indian chemical industry plays a pivotal role in contributing to the economy of the country, accounting for approximately 7 per cent of GDP and is expected to reach $304 billion by 2025, up from $178 billion in 2021.
“The industry continues to remain an attractive hub for opportunities for both domestic and multinational manufacturers. The speciality chemicals segment comprises a significant portion of India‘s chemical industry. With rising demand for value-added products by both domestic consumption and exports, the industry has experienced a significant increase from end-user segments such as the food industry, automobile industry, real estate, clothes and cosmetics, among other industries. Additionally, the Indian speciality chemicals industry is also expected to outpace China, Japan and the rest of the world,” the report said.
Earlier in January, US-based water technology provider Xylem Inc. agreed to Buy Evoqua Water Technologies Corp in a $7.5 billion deal. Evoqua provides water treatment services, including chemicals.
