Spartek Ceramics India

Limited
Expand or Diversify or Acquire?
Group No 6
Group Members:
Vijay Saraf M15109
Shrinidhi Ghatpande M15015
Vikrant Datar P15016
Swapnil Relekar M15106

Contents
Case Study Outline
Spartek Ceramic Industries: Current Situation
Organic Expansion Alternative
Rationale for Acquisition and Diversification
Strategic Framework of Acquisition
Corporate Strategy
SWOT Analysis
Role of Acquisition
Choosing Industry Sector
Analysis of Target Companies

Recommendations

Case Study Outline

India of 1988
Indications of enormous growth in housing sector
Increased demand in ceramic tiles
Private sector investment of Rs 180 billion in 6 th 5 year plan

Ceramic Tiles Industry

Raw material available in all parts of India
Capacity utilization is 65% - 67% capacity located in

southern states
22 units of production
11% exports
Government has de-licensed ceramic tiles industry
Most of the existing players have signed up with proven

equipment suppliers

Spartek Ceramic Industries:

Current Situation
Chennai based company
Marketable quality product
Full capacity utilization within 2

weeks of operation
Sales base concentrated in west
and south regions
Recently raised capacity of a plant
from 12000 TPA to 26000 TPA
Options available with Spartek:
Expansion of capacity to 40000 TPA
Diversification
Acquisition or Merger

Organic Expansion
Alternative
Industry capacity is already under-utilized

(65%)
Expansion would take considerable amount
of capital expenditure and time
Threat of competition
Rupee is depreciating; expanding domestic
sales base is not lucrative
Expansion is possible but not an attractive
option

Acquisition and Diversification

Options for Diversification:
Ceramic Industry: Wall tiles, Table ware
Tile Segment: Natural stone tiles, Mosaic tiles

Two major competitors HRJ and SPL are

entering into Ceramic floor tile segment

This is a threat to Sparteks business and
rationale for Diversification

Acquisition and
Diversification
Rationale for Acquisition(s):
Excess capacity in the market
Organic growth is not attractive
Loss of exclusivity of technology
Increasing competition from new entrants

Strategic Framework of
Acquisition

Corporate Strategy

Maintain Sparteks leadership in the floor

tile industry
Sparteks corporate motto is Innovation
that pays
Penetrate tile segment which is costlier
than Mosaic tiles but less expensive than
Natural stone tiles
Maintain technological edge over
competitors in order to manufacture high
tech tiles
Become a generic brand synonymous with
high quality, high tech floor tiles

SWOT Analysis of Spartek

Role of Acquisition
Increase cash flow to the firm
Expand into unexplored markets (North

India)
Enhance supply and distribution network
Increase capacity utilization
Obtain technological advantage

Industry Sector
Spartek has very well
positioned itself into
Ceramic floor tile
segment

Tile industry
profile (Prices
increase in the
direction of arrow)

With an acquisition or
merger, it can
diversify its product
portfolio or increase
the capacity in the
same segment

Acquisition Targets
1. Somany Pilkingtons Ltd

Veteran in tile industry, established in

sanitary ware
Total capacity is 64000 TPA
Has acquired Orient Ceramics Ltd which
has a capacity of 5000 TPA
Enterprise value (as is basis)= Rs 458
million (Assumptions : Growth rate = 5%
and WACC = 10-12%)
Too big to acquire
Merging can be possible

Acquisition Targets
2. HR Johnson India Ltd
.
.
.
.
.
.

Strong distribution network

Established brand
Acquisition will provide diversification as
HRJ is present in wall tiles
Present in regions where Spartek is not
present
Total capacity is 74000 TPA (62000 TPA is
existing and 12000 TPA is new plants)
Too big to acquire

Acquisition Targets
3. Neyveli Ceramics and Refractories Ltd
.
.

.
.

(Neycer)
Excellent sales base in southern states
Phased expansion cum modernization
plan helped output to rise to 8134 tonnes
in 1987
Glazed ceramic tile manufacturing plant
of 10000TPA capacity in Pondicherry
If acquired, Neycers new plant will aid
Spartek to move closer to sanctioned
capacity of 40000TPA

Acquisition Targets
3. Neyveli Ceramics and Refractories Ltd

(Neycer)
. Cost overruns have inflated the project
cost to Rs 185 million which was funded
by debt. As a result, interest costs have
increased for Neycer
. Debt to Equity ratio of 2.77 suggests that
Sparteks cash flows will be hit due to
interest payments if it acquires Neycer
. Excess capacity and distribution in South
India

Acquisition Targets
4. Regency Ceramics Ltd (RCL)
.
.
.
.

Technical collaboration with Welko Industriale Sp A

Approval of reduced export obligation of 30% due to
downturn in export market
APIDC is a promoter of this company as well as
Spartek
Project costs for Regency has increased by Rs 42
million to Rs 166 million due to re-imposition of duties
with penalty
As RCL was envisaged as an EOU, it can avail of
various concessions such as duty free import of
capital goods
If acquired, total capacity will reach to 51000 TPA

Acquisition Targets
5. Murudeshwar Ceramics

Technical cum Financial collaboration

agreement with German company
. Planned expansion, Capacity= 12500TPA
. Production started up in 1988 which
suggests that a new company would not
be interested in Merger or Acquisition
without testing its capabilities
. Export obligation to the extent of 10% of
its output for first 5 years; not favorable
for Spartek
.

Acquisition Targets
6. Okera Sinter Ltd

Capacity= 13200 TPA

. Production could not start due to power
failure and other technical problems
. Not a favorable option for Spartek
.

7. Kajaria Ceramics Ltd

Production started in mid 1988; export

obligation for first 5 years
. Not a good option for Spartek
.

Acquisition Targets
8. Bell Ceramics Ltd

First in India to install single fast firing

double deck roller hearth kiln, which
would facilitate simultaneous production
of two main products
. Obligation to export 25% of annual
output for first 5 years
. Highly automated plants
. Has revealed plans to expand capacity
.

Acquisition Targets
9. Metlex Ceramics Ltd
.
.
.
.
.

Capacity of 12000 TPA of glazed wall and

floor tiles
Technical collaboration with Sacmi, Italy
Production starting up in 1988; too young
in the industry
Has revealed plans to expand capacity
Not a favorable option for Spartek

Recommendations
If merger opportunity is available, merger

with Somany Pilkington Ltd is a lucrative

opportunity
Acquiring Regency Ceramics Ltd or Neyveli
Ceramics and Refractories Ltd (Neycer) is
recommended
Pros of acquiring Regency over Neycer:
Less debt burden
Entry into export market
Concessions on capital goods import

Thank You