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Our Bureau

Commodities sector deals valued at $3.5 billion

New Delhi March 12 Driven by the Tata-Corus and Hindalco-Novelis deals, the Indian commodities sector, in value terms, accounted for 57 per cent (at $20.9 billion) of total deals done across sectors for the first two months of 2007.

In calendar 2006, deals involving commodities, valued at $3.5 billion, accounted for 20 per cent of total deals while in 2005, the commodities sector in the country witnessed $3.7 billion worth of deals (25 per cent of total deal value).

This is according to a data compiled by accountancy firm Grant Thornton India.

The commodity sector comprises segments including agro-products, oil and gas, energy, cement, steel, aluminium and other metals and coal.

Global footprints

Recently, this sector has started seriously adopting the strategy of establishing a global footprint through inorganic growth in order to achieve higher capacity over a very short period of time. The trend to use acquisition (especially high value deals) as a growth strategy started in 2006 and some of them have materialised in early 2007.

The increase has been from a handful of high value deals rather than a general growth in the number of deals.

Further, Grant and Thornton stated: "We believe that several other Indian companies in the steel, metal, energy and other sectors are exploring large international acquisitions. We expect to see more activity in M&A in the commodity sector in the current year and moving forward."

Within the commodities sector, steel has been garnering the maximum share of value at 52 per cent and most of it is from a single deal - Tata Steel's acquisition of Corus - which is also corporate India's largest acquisition so far. The second position is occupied by "other metals" at 21.5 per cent, again, primarily contributed by a single deal - Hindalco's acquisition of Novelis. It is followed by energy and oil and gas sector accounting for over 20 per cent of the deal value.

Though most of these top deals are outbound deals there were some large inbound deals as well. Recently, outbound deals were much larger in number and value compared to inbound deals. The rationale for inbound deals such as Holcim's investment in Gujarat Ambuja and Ambuja Cements (inbound deals) were to expand capacity by acquiring companies in India with higher margins at attractive valuations. The key rationale for outbound deals has been to make significant strides in the international market by making high value acquisitions.

It is notable that in most of these large deals, the acquirer has bought companies with values larger their own revenues. One of the reasons for such high value deals is the tremendous increase in confidence and support shown by banks and financial institutions in these Indian companies.

More Stories on : Commodities | Mergers & Acquisitions

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