Tega Industries Limited

Tega Industries announced its proposed acquisition of Molycop, a leading global supplier in grinding media for the mining industry, for approximately $1.48 billion. This strategic move, in partnership with Apollo Funds as a significant minority investor, aims to establish Tega as a global leader in 'critical-to-operate' consumables. The acquisition is expected to close by December 31, 2025, or early January 2026, subject to regulatory approvals. Molycop, with over 100 years of history, brings a client network covering more than 400 mines in 40 countries, primarily serving gold and copper extraction, which accounts for 83% of its revenues.

The $1.48 billion transaction will be funded through a mix of equity and debt. Tega's contribution includes $248 million from equity instruments (preferential allotment and QIPs) and a $112 million debt infusion. The promoter family plans to infuse an additional INR 150-200 crores. Molycop's existing debt of approximately $1 billion will be reduced to $780 million from day one, primarily through preferential equity infused by Apollo. This reduction is expected to improve Molycop's credit rating and lower its net debt to EBITDA ratio to less than 2.5x within the next four years, with an anticipated 20-30 basis points reduction in interest rates from the current 8.4%.

The acquisition is projected to unlock significant synergies, with an expected $20 million in EBITDA by year two, scaling up to $30 million annually from year four onwards. These synergies will be driven by a 7% rationalization of selling and general administration expenses, $5 million in annual savings from global capability centers, and $7 million in cost savings from relocating the current headquarters. Management aims to expand Molycop's EBITDA margins from the current 11.5% to 15% without adding additional fixed costs, with a long-term target of 16-17% by year 5. The combined entity is expected to deliver a consolidated return on equity of 18%.

Molycop is a leading supplier of grinding media and chemicals for semi-autogenous grinding mills and ball mills. While its forged grinding media business is expected to grow at a standard 5% CAGR, the high-chrome segment is a key growth driver, projected to grow at 20%. Molycop's high-chrome capacity, currently at 20,000 tons and fully utilized, is targeted to scale to 200,000 tons. The technology and digital segment, though small, is a priority area with a target of 25% year-on-year growth, offering almost double the margins compared to traditional products. Molycop's revenues in FY23-24 tapered due to the loss of two major customers from mine closures, but management expects an uptick with the reopening of these mines.

Tega's integration strategy for Molycop will focus on seamless execution over the next two years, aligning organizational structures, harmonizing systems, and embedding a unified culture. A key priority is unlocking revenue synergies through complementary offerings and deeper customer engagement, alongside joint R&D and innovation. The company emphasizes disciplined financial management post-acquisition, prioritizing debt reduction through strong operating cash flows, which are projected at $50 million annually for Molycop after interest and depreciation from an FY25 EBITDA of $173 million. Molycop's gross block is approximately $700 million, with annual depreciation of $60 million.