Sequoia Capital India has picked up a stake in Ess Dee Aluminium Ltd., which makes packaging materials used by pharmaceutical companies, from the open market. The venture and growth capital investor has picked up a 1.87% stake for Rs 26.88 crore in the Mumbai-based Ess Dee, that acquired loss-making India Foils from the Vedanta. The stake was picked up from Carlson Fund at a price of Rs 448 on the National Stock Exchange.
Ess Dee was trading at Rs 424.95 at 10:08 AM on Thursday morning, up marginally from Wednesday's closing price of Rs 424.65. The stake was picked up by Ironwood Investment Holdings, an investment entity of Sequoia.
Ess Dee is headed by first generation entrepreneur Sudip Dutta who holds a 59% stake in the firm. Ess Dee had revenues of Rs 588 crore in FY10 with a net proit of Rs 102 crore as compared to revenues of Rs 451 crore and a loss of Rs 40 crore in FY09 as it was integrating
India Foils. Current investors in the firm include ICICI Prudential Life Insurance, Morgan Stanley Mutual Fund, Blackstone's India Fund, among others.
Brokerage Prabhudas Liladhar issued a buy rating on the stock in November 2010 with a target of Rs 725. It expects improvement in profit-after-tax due to reversal in impairments occurred when India Foils was acquired plus improved utilisation of capacity in upcoming quarters.
Ess Dee reported Q2FY11 Sales, EBITDA and PAT of Rs 162.2 crore, Rs 44.6 crore and Rs 40.5 crore, respectively.
"Reported PAT included exceptional amount of Rs 10.3 crore pertaining to reversal of impaired assets related to India Foils (in Q4FY09, EDAL has written off Rs 56 crore as impairment of India Foil assets)," said Prabhudas Liladhar in its report. "Management expects to reverse
another ~Rs 35 crore of impaired asset provisions in next two quarters depending on the progress achieved at India Foils facilities. These provisions are tax neutral."
Ess Dee has earlier raised funding from firms like Morgan Stanley and Volrado Venture Partners, which made a partial exit in 2010 with over 5x returns.
Sequoia Capital, like several other PE and VC firms in India, has picked up stakes in a number of publicly listed companies. While it invested in companies like Cognizant and Nagarjuna Construction during the downturn, it has recently invested in firms like Infotech Enterprises, eClerx and Hindusthan National Glass & Industries.
It has also been able to get good upside in some of these investments. It picked up an over 7% stake in Hindusthan National Glass & Industries, the country’s largest glass container maker, for around Rs 127 crore in June 2010 for Rs 200 per share. Sequoia currently has a 30% upside on a 7 month old investment as Hindusthan National Glass close at Rs 261.40 on Wednesday, having hit a 52-week high of Rs 284.