Pritam SangwanOricon Enterprises Limited (OEL), the flagship company of Parijat Enterprises is currently in real estate, marine logistics, packaging, petrochemicals and automobile dealership. The company’s equity shares are listed on BSE & NSE and having market cap of around Rs. 922 crore.
In September 2006, OEL entered into a 30:70 joint venture with Navigate Mauritius Ltd. – a private equity investor, for its packaging division named as Oriental Containers Ltd (OCL) in which the packaging division was hived off. The company acquired 70% equity stake of JV partner on March 2015 making OCL Wholly Owned Subsidiary (WoS) of OEL.
OCL is largest manufacturer of metal and plastic closures having manufacturing facilities in the state of Maharashtra and Goa with aggregate capacity of 19.27 billion caps for bottles and Aluminium Collapsible Tubes (as per company’s records).
The NCLT has recently approved the Scheme of Amalgamation of Oricon Properties Private Limited 100% WoS of OEL, with OEL (‘the transferee company’).
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Transaction
OEL enters into two transactions simultaneously i.e.
- Slump sale by OCL to Oricon Packaging Ltd (OPL) and post that 51% stake to Pelliconi C& SPA
- Mergers of subsidiaries
We have analysed the impact of both as both are connected transaction.
Stake Sell in Step Down Subsidiary:
- Oricon Enterprises Ltd.’s 100% subsidiary Oriental Containers Ltd. proposes to transfer its closure business to its subsidiary company OPL which was formed in the year 2017-18 only.
- For transfer of business, OPL will issue equity shares 49,50,000 shares of face value Rs 10 each to OCL.
- OCL, post-transfer of business will sell 51% equity shares of OPL to Pelliconi C & SPA, Italy (one of the world’s leading companies in the manufacture of Closures for the developed countries) on completion of conditions as per agreement at an Enterprise value of Rs 419.40 crore subject to adjustments as per Agreement.
- On completion of the transaction, Oricon Packaging Ltd, the joint venture company will have Pelliconi C & SPA with 51% stake and Oriental Containers Ltd at 49%.
Consolidation of Corporate Structure:
- To consolidate its corporate structure OEL proposes to merge its wholly owned subsidiaries Oriental Containers Ltd (Post Slump sale) and Shinrai Auto Services Ltd. having Appointed date of 1st April 2017 with OEL.
Note: Shinrai Auto Services Ltd (SASL) has transfer the business of its Toyota dealership to Madhuban Motors as a going concern on a slump sale basis for a total consideration of Rs 28.35 crore, post-transfer (have no other business) SASL will be merged into OEL. The transfer of Toyota Dealership business (assets and liabilities) is under process and the same will be completed in due course of time.
Post Consolidation Structure OEL will have following business:
- Existing Business of trading and manufacture of Pentane & others
- The planned manufacturing unit to manufacture perform for beverages industries in the state of Odisha with the expected investment of about Rs. 100 crores in two phases. The allotment of land has been completed and the orders for machineries have been placed.
- One acre land in Worli, Mumbai, for another two acres land in Worli, Mumbai JDA has been signed with subsidiary of Indiabulls Real Estate
- 49% Stake in Oricon Packaging Ltd, the JV Company where Pelliconi C & SPA will be the JV Partner with 51% stake.
- 29% stake in United Logistics Limited is India’s Largest Marine logistics company handling Dry Cargo operating at various minor ports across few states.
Financials
OEL Financial Highlights:
OEL’s almost 90% profit comes from shipping & packaging business which is carried out through United Shippers and OCL respectively.
OEL also have land pool and entered in JDA with subsidiary of Indiabulls for developing residential property which is expected to give revenue of around Rs 650 – 700 crores, project is expected to be complete in 5 years. Further, OEL has also started manufacturing of preforms from its new plant at Odisha with an investment of Rs 100 crores in two phases.
Table 1: Net Assets and P&L Attributable to Owners & Minority Interest of OEL for Mar-17 (Rs. in lakh)
| Name of the entity | Net Asset = Total asset – Total Liability | Share in Profit or loss | ||
| As % of Consolidated Net Asset | Amount | As % of Consolidated P&L | Amount | |
| Oricon Enterprises Limited | 40.13% | 49,099 | 10.93% | 488 |
| Indian Subsidiaries | ||||
| United Shippers Limited | 35.34% | 43,244 | 45.29% | 2,024 |
| Oriental Containers Limited (OCL) | 15.27% | 18,682 | 44.11% | 1,971 |
| Oricon Properties Pvt Ltd (now merged in OEL) | 10.41% | 12,741 | 11.91% | 532 |
| Shinrai Auto Service Limited | -1.11% | -1,360 | -9.83% | -439 |
| Indian Joint Ventures | ||||
| Claridge Energy LLP (JV) | -0.04% | -44 | -2.41% | -107 |
| Total | 100% | 1,22,363 | 100% | 4,469 |
| Arising out of consolidation | – | -38,803 | – | -111 |
| Minority Interest (united Shippers Ltd) | – | -15,260 | – | -829 |
| Consolidated Net Assets/ P&L | – | 68,299 | – | 3,529 |
OCL Financial Highlights
Table 2: Financial Details of OCL (Rs in Lakh)
| Particulars | 2017 | 2016 |
| P&L Extract | ||
| Revenue | 37,847 | 40,937 |
| EBITDA | 5,977 | 5,915 |
| EBIT | 3,338 | 3,530 |
| Interest | 535 | 774 |
| PAT | 1,971 | 1,878 |
| Margins | ||
| EBITDA% | 15.79% | 14.45% |
| EBIT % | 8.82% | 8.62% |
| PAT % | 5.21% | 4.59% |
| Balance Sheet extract | ||
| Shareholders fund | 18,682 | 16,711 |
| Borrowings (Long term & short term) | 11,534 | 13,351 |
| Fixed Asset | 18,533 | 17,108 |
| Other Non- current assets | 926 | 281 |
| Current Assets | 19,237 | 20,846 |
Note: Closure Business of OCL accounts for almost 94% of total sales, bifurcation of assets and liabilities not available between closure business and other business.
Capital Structure
Table 3: Shareholding Pattern Pre & Post Stake Sale (% as on Sep 2017)
| Particulars | OEL | OCL* | OPL |
| Pre-Shareholding – Stake sell | |||
| Promoter Group | 65.68% | 100% | 100% |
| Public | 34.32% | – | – |
| Post Shareholding – Stake Sell | |||
| Promoter Group | 65.68% | 100% | 49% |
| Pelliconi SPA | – | – | 51% |
| Public | 34.32% | – | – |
*Post transfer of closure business OCL will merge into OEL
Valuation
Table 4: Valuation summary
| Particulars | Amount (in crore) |
| Net Assets of OCL (Mar 17) | 186.82 |
| Enterprise Value of OPL for stake sell | 419.4 |
| Market value of Business (EV excluding long term debt) | 378 |
| Premium on stake sale (based on the Mar 17 Net Asset Value) | 2.02 times |
Note: Since almost 94% sales of OCL is from closure business, we have assumed entire net assets value is of closure business for calculation purpose.
Stake Sale Transaction Analysis
- Investment by OEL in OCL for 100% stake is Rs 136 crores (approx.) and for selling 51% of OPL to Pelliconi SPA at an enterprise value of Rs. 419.40 crore, company will receive Rs 160-165 crore of cash post adjustment of working capital and debts (as disclosed by the company).
- Currently, OCL contributes 15.27% and 44.11% respectively in consolidated net assets and PAT respectively, post stake sell OCL contribution will come down to 8.11% and 28% respectively in consolidated figures (based on Mar 17 figures by keeping other entities figures same).
- Stake sell will give access to new technology to Oricon to manufacture Maxi P which is a latest closure being used by beverages industry mostly in beer industry, and whether royalty is to be paid on technology transfer is not yet clear.
- Stake sell to Pelliconi SPA will be liable to capital gain tax.
Conclusion
The transaction creates opportunity in terms of new products and advanced technology and enough funds for future growth of its closure business. In future, Indian facilities can be used to exports to Pelliconi SPA’s other customers in foreign countries. It will also have surplus cash out of the transaction for OEL post-merger of OCL, no doubt with advanced technology and strong partner, it will be easy for OPL to remain ahead of competitors for long time.
Consolidating remaining business of OCL and Shinrai Auto will help in reduction in administration and procedural cost, overhead cost, talent pooling and effective management. Other significant subsidy USL with logistics business also may be hived off sooner than later to encash value for its stakeholders.
