Corporate Development

Published: Mar 15, 2022
Updated: Mar 15, 2022

DyStar case to emerge as a game changer

Kiri Industries

Based at Ahmedabad, NSE-BSE listed Kiri Industries (KIL), a Rs 1,000-crore Kiri Industries Ltd., is one of the largest manufacturers and exporters of a wide range of dyes, dyes intermediates and basic chemicals with zero effluents. Its capabilities have enabled it to set up a strong footprint in over 50 countries across 7 continents.

On the other hand, in 2010, the DyStar group was acquired by the China-based Zhejiang Longsheng group and Kiri Industries Ltd, wherein currently KIL holds a 37.57% stake

The DyStar group is a leading dyestuff and chemicals manufacturer and solution provider, offering customers across the globe a brand portfolio of colorants, specialty chemicals and services. With 16 manufacturing plants and a combined production capacity of 1,76,000 tpa, the company is a market leader in the global dyes market with a marketshare of over 21%. In CY20, the total revenue was at $ 758 million and PAT was $ 70 million. The company is debt-free, with a sizeable cash surplus.

KIL had filed a minority oppression suit against Senda International Capital Ltd (Senda), the wholly owned subsidiary of Longsheng, with whom KIL is holding its 37.57% stake in DyStar. Following the suit, the international court had directed Senda to buy out Kiri’s minority stake (though not that small) in DyStar, based on the company’s financial position as on July 3, 2018.

LEGAL TUSSLE

After a long-drawn valuation tussle, the Singapore International Commercial Court (SICC) in its judgement of June 2021 awarded a valuation of $ 481.60 million to KIL for its 37.57% stake in DyStar. However, KIL filed appeal at the Court of Appeal, the Singapore Supreme Court, wherein the final hearing took place on January 26 and 28 this year and the final judgement is likely to come through by this month-end.

If one goes by the SICC’s verdict, KIL could get Rs 3,660 crore (@ Rs. 76/$) against its investment value of Rs 95.50 crore. Considering a levy of 20 per cent tax on this receipt after calculating indexation since 2010, when KIL made its investment in DyStar, the net amount would come to Rs 2,928 crore. This one-time windfall gain shall turn out bigger than its current market capitalization of Rs 2,505 crore, going by its current price of Rs 483.25 for a Rs 10 face value share.

As per the books of account, KIL has made an investment of Rs 95.50 crore in DyStar Global Holdings (Singapore) Pte Ltd for its 26,23,354 equity shares of SG$ 10 each. The reason for going into appeal obviously indicates that KIL is expecting a higher valuation than the amount of $ 481.60 million, the judgement pronounced by the SICC.

In one more case against DyStar, KIL has filed an appeal with the Court of Appeal – Singapore, with regard to its counter claim of reimbursement of cost of Singapore $ 11,37,856. 41 against the ruling of SICC. This matter has been fixed for hearing in July.

ON STRONG WICKET

KIL has a sizeable investment of Rs 1,617 crore in its subsidiaries and associates (including DyStar). It also has a strong net fixed assets base of Rs 550 crore, and capital workin-progress of Rs 60 crore vis-à-vis a very small borrowing of Rs 28 crore. On a consolidated basis, it has reported a net revenue of Rs 1,080 crore in the first nine months of the current FY22. The EBITDA and PAT have been at Rs 96.5 crore and Rs 43.7 crore respectively. The finance cost remained low at Rs 3.37 crore against Rs 2.94 crore during the same period.

Lonsen Kiri Chemical Industries Ltd (LKCIL) is the joint venture company set up in 2009 at Vadodara. It manufactures reactive dyes and enjoys economies of scale. The China-based Zhejiang Longsheng group holds 60% stake in LKCIL and KIL holds the balance 40%. The plant is well designed with the expertise of both the partners. Among other features, it has an effluent treatment and rain harvesting facility. This JV is doing quite well.

The latest shareholding pattern of KIL reflects the promoter group holding at 26.99%, whereas the 46 foreign portfolio investors control 49.45% and the balance holding is mainly with individuals. After the conversion of all pending FCCBs into equity recently, the present equity capital of the company has gone up from Rs 40 crore to Rs 51.80 crore.

It’s worthwhile mentioning that the judgement of the Court of Appeal-Singapore against the main suit, when it comes, could completely change the fortunes of KIL. Importantly, the company is already on a sound wicket with an exceptionally strong bouquet of products, technology, integrated manufacturing facilities, and a well-established marketing network, including exports, which would go highly in its favour. Hence, it should not be surprising if KIL reaches new heights with its next phase of ambitious growth plans and a zero debt status.