Post-merger, the combined entity will have operating revenue of Rs 1236 crore on proforma basis, two production facilities and over 700 employees.

The BSE-listed Orient Refractories has announced merger of its two unlisted subsidiaries – RHI India and RHI Clasil – with itself for better operational efficiency and simplify holding structure. The merger through the proposed scheme is expected to be completed over the next 9-12 months. Orient Refractories is the leading manufacturer and supplier of special refractory products, systems and services. Post the merger, the shareholding of RHI Magnesita, through Dutch US Holding BV and other group companies, in the combined company is likely to be 70 per cent, said Orient Refractories early in August 2018. Furthermore, about 5 per cent of the shareholding will be held by certain individual shareholders of RHI Clasil who are not part of the RHI Magnesita group, the world’s largest refractory player. All three companies are part of the London Stock Exchange listed RHI Magnesita, a leading global supplier of high-grade refractory products, systems and services.

Parmod Sagar, Managing Director, Orient Refractories, said the merger will strengthen operations, significantly expand product offerings and sales platform to access a much larger client base and allow for a pooling of resources and know-how. ”We believe that this will act as a strong platform from which we can embark on the next phase of our growth and unlock significant value for the shareholders.’

As part of the merger, Orient Refractories will issue 7,044 equity shares (with face value of Rs 1 each) for every 100 equity shares of RHI India (Rs 10 face value each) and 908 equity shares for every 1,000 equity shares of RHI Clasil (Rs 10 face value each). Pursuant to the scheme, share base of Orient Refractories will increase from 120.1 million to about 161 million.

Orient Refractories is 69.6 per cent owned by RHI Magnesita. RHI India, takes care of sales and offers full range of refractories and related services while RHI Clasil, which is 53.7 per cent owned by RHI Magnesita, manufacturer and supplier of mainly Alumina-based refractories for the steel and cement industries.

RHI Magnesita is a global refractory supplier, with revenue of 2.7 billion euros in 2017. It has more than 14,000 employees in 35 main production sites and more than 70 sales offices. Refractory products are used in high-temperature industrial processes like production of steel, cement, glass, etc.

In India, the combined company is estimated to have operating revenue of Rs 1,235.6 crore as against the Rs 626.8 crore posted by Orient Refractories in fiscal 2018 ended in March 2018. It will have two production facilities with over 700 employees. After the completion of the merger, Orient Refractories is proposed to be renamed RHI Magnesita India.

In order to strengthen its position in India, RHI Magnesita had acquired 43.6 per cent of Orient Refractories in 2013. After a mandatory open offer that followed the deal, it currently holds a 69.6 per cent stake. RHI India, a wholly owned subsidiary of the parent, is the Indian sales company of the RHI Magnesita group. RHI Clasil is a manufacturer and supplier of mainly alumina-based refractories for the steel and cement industries and is 53.7 per cent-owned by RHI Magnesita.

"The merger marks an important milestone towards expanding RHI Magnesitas market leadership in the refractory market of India. We are convinced that one strong entity, organisation and management in India will increase long term value for all stakeholders," said Stefan Borgas, CEO, RHI Magnesita. This merger significantly enhances the profile of RHI Magnesita in India and creates a stable umbrella under which the immense growth potential we see in the Indian market can be tapped more effectively and efficiently.

”We believe, the proposed merger will create significant value for shareholders. The combined entity will have operating revenue of Rs 12,356 million, EBITDA of Rs 2,322 million, PAT of Rs 1,406 million (on FY18 proforma basis) and outstanding shares of 161 million (versus approximately 120 million in ORL). This implies FY18 proforma EPS of about Rs 8.7, indicating approximately 22 per cent accretion over ORL’s FY18 EPS of Rs 7.1. RHI Magnesita will hold about 70 per cent of the combined entity and ORL’s minority shareholders will hold about 23 per cent," said Shradha Sheth, Edelweiss Research in a note after the merger announcement. Orient Refractories’Q1FY19 revenue grew a strong 23 per cent year-on-year (YoY) and PAT jumped approximately 34 per cent YoY.

”This merger is part of RHI Magnesita’s strategic pillar "markets" which focuses on building a global presence with strong local organisations and solid market positions. India’s growth prospects in the refractory market derive primarily from the steel sector, which is by far RHI Magnesita’s largest customer industry (74% of 2017 pro-forma revenues)… With one strong and integrated local organisation, the industry’s most comprehensive product portfolio and proven supply and sales capabilities RHI Magnesita India will be optimally positioned to leverage the positive local market developments in India," RHI Magnesita said in its global announcement.