Everstone set to exit Calibre Chemicals, appoints JP Morgan

The two entities are looking to offload a 90% stake in the company in a secondary sale, the people said. Everstone has appointed JP Morgan as the investment banker to manage the sale process, they added.

The deal value for Calibre is estimated at ₹1,500 crore, or just under $200 million, translating into 7-8 times its earnings before interest, taxes, depreciation and amortization (Ebitda),  a standard profitability metric for a specialty chemicals company.

Everstone, Bhavnani and JP Morgan did not respond to Mint’s queries.

Calibre manufactures specialty chemicals for nutrition, pharmaceuticals, and personal care, including iodine derivatives, at its plant in Gujarat. It is the leading producer of persulphates, perchlorates, iodates, and iodides in India.

In 2021, Everstone had acquired a controlling stake in the chemicals maker for $100 million through a combination of primary and secondary share purchases. The investor holds just under 53% in the company.

Following Everstone’s investment, the company went on an acquisition spree, picking up 100% stakes in Germany-based RheinPerChemie GmbH (RPC), a manufacturer of ammonium and sodium persulphates, in 2022, and the laboratory and product development business of Bengaluru-based Tina Life Sciences in April 2023.

The acquisitions, prompted by increasing demand for specialty chemicals, have led to a significant rise in both revenue and profit margins between FY21 and FY23. According to VCCEdge data, Calibre’s consolidated sales rose to ₹1,013 crore in FY23, with a net profit of ₹131 crore.

Its overall performance positioned the company favourably with rating agencies. In October, Crisil reaffirmed its A+ rating with a stable outlook, highlighting its robust business risk profile, market presence across various product segments, efficient capacity utilization, and diversified revenue streams across business segments, geographical regions, and end-user industries.

“The rating also factors in the company’s healthy financial risk profile and strategic support available to it following the takeover of a 53% controlling stake in the company by Everstone Capital,” Crisil analysts noted.

However, the ratings agency said the company has its share of challenges with increasing competition in the specialty chemicals sector, and significant exposure to input cost volatility.

“The specialty chemicals industry has been witnessing sluggish growth in volume sales, while prices have corrected since the fourth quarter, led by increased competition from China and impacted by the overall slowdown in the global economy, especially in the advanced markets of Europe and US.”

Experts said a significant surge in competitive pressure over the past year, driven by aggressive price cuts from Chinese producers, has impacted the margins of Indian firms, with ebitda margins taking from a robust 25% benchmark just over a year ago to 12-15%.

Investment bankers specializing in the specialty chemicals sector said the downturn has also affected valuations, which transitioned from 12-15 times ebitda to single-digit multiples.

Calibre’s ebitda margins declined from 27% in Q1FY23 to 12% in Q1FY24, with the full year projection for 2023-24 at 13-15%, according to Crisil.