SPARTEK

CERAMICS INDIA
LIMITED
What will be the future course for GROWTH

Submitted by:
Alisha Dsouza (03)
Rucha Shirudkar (51)
Saurabh Patwardhan (56)

1 IGTC 2016-2018
 AGENDA

Company Background
Industry Analysis
SWOT Analysis
Strategic options
Competition Analysis
Strategy, Merger /Acquisition, Expansion
or Diversification?
Option Analysis
Recommendation

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 COMPANY BACKGROUND

1983 Spartek India was incorporated

First Year of Production.

1985 Issued IPO

SALES: 40% South

1988 30% West (Mainly Bombay)
30% North and East

Technical collaboration with USA-SFT

Plant Location : Andhra Pradesh ( Close
proximity to clay mines and also close to
MADRAS a major market)
Distribution network concentrated in Southern
and Western India
Started with plant capacity of 12000 TPA, and
expanded to 26000 TPA. Also have approval for
40000TPA plant.

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 FORMULTION OF CORPORATE STRATEGY
In 1988, options available with Mr. Krishna Prasad Tripuraneni MD of SPARTEK are :

SPARTEK

Diversification
Merger/
OR Expansion OR Acquisition

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 INDUSTRY ANALYSIS
Threat of New Entry: Low
Competitive Rivalry: High THREAT OF Entry barrier-Nil as licensing was
NEW ENTRY
Overall 22 players removed
Top 5 player have overall 55%
market share

Supplier Power: Low COMPETITVE

SUPPLIER BUYER
Plenty availability of POWER RIVALRY POWER
raw material Clay in
India

Buyer power: High

Many player offering similar
Threat of substitution:
product range and with
Moderate THREAT OF
SUBSITUTION variety in tiles
Ever changing market

Ceramic Industry is un-attractive as there is high rivalry and the customers have lots of
choice amongst similar products.
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 SWOT ANALYSIS - SPARTEK
Strength
1.Storng Brand image
Weakness
1.Retail visibility is low in North and West
2.Single Fast firing cutting technology
2.Exports Nil
3. First mover advantage
3. No existing diversification
4.Strong hold in South Market
5.Quality
6. LPG Fuel used

Opportunity
1.Increasing demand for products
2.Expansions and capturing market
share
3.Market ripe for consolidation
Threats
1. Competition is seen to be capturing
higher market share
2.Capacity utilization reducing (65%)
3. Threat of growing competition by
existing as well new entrants

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 STRATEGIC OPTIONS
Organic Expansion:
Possible but not a very attractive option
Time to expansion will let competitors get advantage i.e. threat of
competitors taking lead
Under-utilization of capacity in Industry

Inorganic expansion:
Neycer and Regency can be considered for Acquisition
Neycer:
1. Gives opportunity for capacity expansion
2. Diversification of product portfolio (Sanitaryware & Stoneware)
Regency:
1. Gives opportunity for Export due to strong competency in exports

Merger: -
Somany Pilkingtons Ltd (SPL) can be considered as post merger the total
capacity will equalize to HR Johnson

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 Analysis of Acquirer firm
Spartek Ratio Analysis :
RATIOS 1988 1987
ROCE 23% 35% ROCE is high due to high
Profitability profitability and lower activity
EBIT margin 25% 29% ratio
PAT Margin 16% 19% DIV and DSO seems to be high
EPS (Rs.) 10.05 9.53 due to longer credit period
Cost Ratios PE ratio is lesser and shows
RM cost 14% 16% confidence of market in Spartek
Employee Cost 3% 2%
Activity
Turnover Ratio (Times) 0.94 1.21 Spartek can adopt the role of a
cautious acquirer a company
Working Capital turnover(times) 2.51 2.52 which purchases many small firms
DIV(Days) 117.27 122.99 and avoids placing too much of its
DSO (Days) 73.46 53.64 funds into any one acquisition as
Debt Equity 1.15 0.94 it is a cost effective strategy
PE ratio 8.36 8.55 wherein its balance sheet will take
hits many times, but of only small
amounts

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 0
40
50
60
70

10
20
30
62
HR Johnson

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Somany
Spartek

26 25
Regency

20
Bell Ceramis

12
Kajaria
18
Anant Raj
Murudoshwar
13 13

Kera sinter
10

Eastern ceramics
13

Orient Ceramics
10

Neycer
Capacity (TPA in 000')

Madhusudan
6

Metlex
Competition Analysis

10

Decera Ceramics
Neycer + Spratek = 36 K TPA
Spartek + Somany = 60K TPA

5
Regency + Spartek = 51 K TPA

Parsuram Pottery
6

Western India
8

Ceramic India
6

Universal Tiles
1

Orissa Tiles
9
 Analysis of options for Merger/Acquisition/
Diversification
Somany Pilkingtons Limited
Plants in both Gujarat and Haryana with capacity of 12000 MT and 21600
MT respectively
Expansion plan and new units for increasing capacity by 30400MT in Gujarat
and Haryana
Has a significant presence in sanitary ware sector
It is a veteran in the tile industry
Has shares trading at Rs.100 in May 1988
Has acquired Orient Ceramics Limited (OCL) which has a capacity of 5000
TPA
Long term borrowing = 10.34 million
Earnings After Tax = 20.57 million
D/E = 0.1
Enterprise Value = 45.91
Enterprise value/sales = 0.2

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 Analysis of options for Merger/Acquisition/
Diversification

Neyveli Ceramics and Refractories Limited (Neycer)

Plant in Pondicherry with a capacity of 10000 MT

In the business of manufacturing sanitary ware, ceramic ware, stoneware
pipes etc.
Strong brand image and excellent retail visibility
Shares trading at face value of Rs.10 in May 1988
Long term borrowings = 129.66 million
Earnings After Tax = (18.94) million
D/E = 4.15
Enterprise Value = 144.28
Enterprise value/sales = 1.06

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 RECOMMENDATION
Option 1: SOMANY"
Somany is a good option for Merger because of its presence in North giving
good market exposure in new geography
Also for diverse product portfolio with good market value

Option 2: NEYCER
The capacity of their Pondicherry plant is exactly what Spartek needs to reach
the government sectioned limit of 40000 MT
Their D/E ratio is high and Enterprise value to sales ratio is high as well. Hence,
Spartek should acquire Neycer
The synergy that Spartek would achieve because of this would be significant,
influencing it to a big industry player in terms of capacity and also making it a
player in the sanitary ware sector
From the target company's point of view, Spartek has the necessary expertise
in the ceramic tile industry where as Neycer is experiencing large cost and
turnover-runs
Wide product portfolio
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