APL Apollo To Acquire Shankara's 200,000 MTPA Tube Manufacturing Unit In Southern India For Rs. 70 Crore
APL Apollo Tuhes Limited, india's leading branded steei tubes manfacturer, announced that it has entered into an agreement with Shankara Building Product: Limited to acquire its 200,00 MTPA tube manufacturing unit based in South india for a total consideration of RS. 70 crore. The Company proposes to fund this acquisition through internal accruais. The acquired facility has established manufacturing lines for Gl pipes and GP pipes, which are APL Apollo's high margin and value added product segments. Improving portfolio of these products will enable increased revenue and voiume contribution of value added segments while also leading to steady improvement in operating margins.
Pre Galvanized Tubes
APL Apollo’s existing manufacturing units catering to the southern markets are operating at over 80% utilization levels. In addition, Shankara being the second largest player in the South India market, the Company believes that this acquisition was an excellent opportunity to build and consolidate market share of APL Apollo in South India markets. Further, it will also enable APL Apollo to add further capacities at attractive valuations, given the strong demand outlook over the next few years. The Company anticipates to ramp up volumes at a healthy pace in the acquired unit, which is currently operating at ~40% utilization. The target is to improve the operating efficiencies and the utilization levels of the acquired unit to APL Apollo's standard of 80-85%. Furthermore, Shankara has agreed to purchase 2.5 lakh tonne pipe from the Company in FY 2020, which will assist volumes, as well as entered into an arrangement to buy exclusively from APL Apollo going forward. APL Apollo will be able to bring down costs related to raw materials, operating costs, and transportation costs owing to economics of scale in the region. This should further lead to a quick turnaround of the facility and will enable APL Apollo to achieve a payback period of less than 3 years.