The Hindu Business Line : Micro Inks: Reject

SHAREHOLDERS of Micro Inks can reject the open offer by MHM Holding of Germany. The latter is offering to acquire 49.7 lakh shares, constituting 20 per cent of the equity stake. At Rs 655, Micro Inks trades at 17 times its trailing 12-month earnings. The offer price at 3 per cent premium to the market price does not appear attractive.

As the acquisition benefits the acquirer and Micro Inks, there is a case for retaining exposure in the stock. Huber, which owns MHM Holding, gets a toehold in the Indian market while Micro Inks would enjoy the benefits of a superior distribution network.

The increasing literate population and the growth in the packaged food business are expected to provide Micro Inks opportunities to grow its revenues. The change in ownership could also provide an avenue for growth in the export market. Exports to subsidiaries and overseas distributors now contribute 50 per cent of revenues. With the parent company having a strong global presence, this share is likely to rise and provide a cushion against any sluggishness in the domestic market.

As Micro Inks was unable to pass on higher raw material costs to its long-term customers, who account for much of its business, the margins have taken a beating over the past four quarters. Revenue growth has, however, ensured that Micro Inks maintains its earnings level. The operating margins are, however, likely to improve if crude oil prices stabilise at lower levels and have a spin-off effect on downstream products.

Background: The open offer was triggered by MHM Holding buying a 50.5 per cent stake from the promoters. MHM Holding, a closely-held entity, is the parent of Huber group, one of the larger printing ink manufacturers at the global level. The Bilakhia group has disposed 6.86 per cent of its stake in the open market to ensure that the public holding in the company does not fall below 25 per cent; it will continue to hold a 4.5 per cent stake in Micro Inks. Post the successful closure of the open offer, MHM Holding's stake in Micro Inks could rise to 70.5 per cent. The stock is likely to remain listed and this is also why investors should remain invested, as the downside risks appear marginal.

Micro Inks is among the larger printing ink manufacturers in India. The printing inks business contributes 75 per cent of the revenue, and pigments, resins and wire enamels the rest. To strengthen its presence in the overseas market, Micro Inks has set up subsidiaries in China, Hong Kong, Australia and Singapore. Micro Inks has integrated ink manufacturing facilities and its presence across the value chain in the printing inks industry mitigates risk.

The open offer, which opened on December 9, closes on December 28. Kotak Mahindra is the manager to the offer and Intime Spectrum Registry the registrar.

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