Essel Propack buys out JV partner to boost Europe biz

MUMBAI: Essel Propack has announced a complete buyout of its German partner's stake in Essel Deutschland Germany (EDG) -a tube-making joint venture. The acquisition will help Essel to unlock synergies such as cross-selling across German and other European markets, sourcing and better capacity utilisation at its Europe units.

This will help revive it's European business which has been relatively weak. The deal puts EDG's enterprise value at $32 million. Essel currently owns 24.9% in EDG.

“Our German partner has finally agreed to the deal and at an attractive valuation,“ said Ashok Goel, vice-chariman, Essel Propack.

The company is acquiring EDG at a valuation of less than one time sales and seven times EVEBIDTA, which does not appear expensive given EDG's financials. In 2015, EDG did sales of around $40 million (`270 crore). Its EBIDTA margin is around 9% -much less than Essel's consolidated EBIDTA margin of 19%, but higher than its European business EBIDTA (EBIT for FY16 was 5%).

According to Goel, the margins are currently lower but should improve once the synergies take place.

On Wednesday, Essel Propack's stock closed at `235, 5.5% higher than its previous day's close.