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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
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
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
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
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
Acquisition Targets
2. HR Johnson India Ltd
.
.
.
.
.
.
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)
.
.
.
.
Acquisition Targets
5. Murudeshwar Ceramics
Acquisition Targets
6. Okera Sinter Ltd
Acquisition Targets
8. Bell Ceramics Ltd
Acquisition Targets
9. Metlex Ceramics Ltd
.
.
.
.
.
Recommendations
If merger opportunity is available, merger
Thank You