Kiri Dyes enters into jt venture with Chinese co

Ahmedabad: The Ahmedabad-based Kiri Dyes and Chemicals Ltd (KDCL) on Monday announced a joint venture with China's Zhejlang Longsheng Group Company Ltd (Lonsen) with a total investment of $10 million to manufacture dyestuff for domestic and international markets at a new plant to be set up in Gujarat.

KDCL has filed a draft red herring prospectus with the Securities Exchange Board of India (SEBI) to raise up to Rs 70 crore through an IPO in the next few weeks, diluting 25 per cent of equity. Its Chinese partner has, in a pre-IPO placement, agreed to take 7.5 per cent stake at Rs 115 per share. With a 40 per cent growth rate in industry,

KDCL is targeting to increase its turnover from Rs 133 crore in 2006-07, with a net profit of Rs 8.63 crore, to about Rs 250 crore this fiscal.

The company will continue to manufacture its current range of products at its two plants with a total capacity of 10,800 MTPA, in Ahmedabad and Vadodara districts. It is in the process of setting up a backward integration project to produce sulfuric acid, oleum and chlorosulfuric acid as raw materials for dye intermediaries.

However, the company clarified that proceeds from the IPO would not be used for the new project, a separate entity. Lonsen or its affiliates and KDCL, as per their MoU, will hold 60 and 40 per cent equity in the new endeavour and contribute $6 million and $4 million respectively, towards initial capital investments during 2007-08 and 2008-09, out of internal generation of resources. The site of the proposed plant would be finalised jointly.

For subsequent fund requirements, both the parties will raise resources in proportion to their shareholding, Mr Pravin Kiri, Chairman, and Mr Manish Kiri, Managing Director, told reporters here. The new plant is expected to be operational by end-2008. The JV will start with an initial production capacity of 20,000 tonnes per annum of reactive dyes. The company could enhance capacity to 50,000 tonnes a year after successful execution of the project. While KDCL would be benefited with the Chinese partner's marketing network, the latter would benefit with technology. The JV aims at broadening product range, base and marketing of products, they added.

With this, the new entity is expected to have a turnover of Rs 207 crore and a net profit of Rs 16.5 crore and Rs 21 crore in the first and second year of production, with 60 per cent and 80 per cent capacity utilisation, respectively. Almost the entire production is expected to be exported, including to China.

Long-term plan

Lonsen is one of the largest private-sector Chinese companies in dyestuff segment and the only public-company listed on Shanghai Stock Exchange in this segment with a turnover of more than Rs 3,000 crore through its 13 subsidiaries. After the new dyestuff plant goes operational in Gujarat, both the parties would jointly invest in new projects, plants or organisation for future growth globally. As a long-term strategic tie-up, they will identify specific projects to make investments and the JV could diversify into manufacturing new chemical products. Lonsen is a producer of dyestuffs, based at Shangyu. Its production is equal to India's entire production of dye-stuff. India's organic and inorganic dyestuff exports, to the tune of Rs 20,000 crore per annum, is projected to go up to Rs 25,000 crore next year, which is not even one per cent of global business in this segment, they said.