NACL Industries shares rise 45% in 5 sessions; here's why

This came after Coromandel International signed a definitive agreement with NACL Industries Ltd to acquire a 53% stake at ₹76 apiece in the latter from the current promoter KLR Products Ltd. In addition, the company also launched an open offer to acquire a 26% stake from the public at the same price.

NACL Industries is a leading crop protection company with a strong domestic formulation business, global technical exports and contract manufacturing operations. While Coromandel International is a leading fertiliser and agrochemicals company.

The rally in shares of loss-making NACL industries was largely driven by optimism around the company’s turnaround after Murugappa Group’s Coromandel International planned to acquire a controlling stake in the company.

Here are the reasons for the investor optimism around this stock.

Murugappa Group tag

The Murugappa Group is widely known for their turnaround stories in the business world. Investors of the NACL Industries see the acquisition as an opportunity for the company to become profitable again with Murugappa Group’s experience and access to capital.

Synergies

Coromandel International aims to capitalise on NACL Industries’ research and development capabilities to strengthen its position in the crop protection market and enter into contract manufacturing aggressively. The acquisition will open up a distribution network of Coromandel International which spans over 20,000 dealers and 80,000 retail touchpoints for NACL Industries.It could also enhance the research and development capabilities of the company and could benefit in providing tailored agricultural products.

Improvement in financials

NACL Industries posted losses in recent years partly due to high capital expenditure, operational inefficiencies and cyclical downturns. The company’s operating profit in FY24 fell to ₹17 crore from ₹193 crore in FY23. Additionally, due to the high debt, interest payments surged from ₹29 crore in FY20 to ₹76 crore in FY24.

However, investors are now optimistic about an improvement in the company’s financial performance after the acquisition by Coromandel International, with the help of Murugappa Group’s experience in turnarounds, improving governance and operational efficiencies.

CG Power and Industrial Solutions

The company is one of the leading brands in electrical equipment manufacturing catering to the industrial solutions and power systems segment but was drowning in debt. In 2020, Murugappa Group bought an over 50.62% stake in the company via Tube Investments of India for ₹700 crore. Following the acquisition, the group infused capital into the company, restructured its debt and improved corporate governance. As a result, the company became profitable in FY21, posting a net profit of ₹1,280 crore, which increased to ₹1,715 crore in FY24. Consequently, the share price of the company also jumped from ₹32 in November 2020 to ₹874 in October 2024.

Shanthi Gears

In 2012, Tube Investments of India acquired a 70.12% stake in Shanthi Gears at ₹252 crore. The company was seeing stagnant growth under earlier promoters. The revenue came down from ₹274 crore in FY08 to ₹187 crore in FY12, while the net profit eroded from ₹44 crore to ₹15 crore. After the acquisition by the Murugappa Group, the revenue jumped to ₹229 crore in FY18 and the net profit jumped ₹28 crore. During the same period, the share price of Shanthi Gears jumped from ₹37 to ₹130 apiece, translating into 248% returns in six years. While the company was not a distressed asset, it highlighted the Murugappa Group’s efficiency in enhancing profitability in acquired companies.

Apart from the two companies mentioned above, the group also acquired a controlling stake in EID Parry, a sugar and bio-products company, in 1980. The company was struggling due to cyclical downturns and operational inefficiencies.