Indofood Agri’s acquisition of assets in Brazil to boost future earnings

This US$71.7m deal is set to be completed in 2013.

According to CIMB, Indofood Agri (IFAR) has acquired a 50% interest in the Companhia Mineira De Acucar E Alcool Participacoes (CMAA) group for R$143.4m (or around US$71.7m). The acquisition price was based on a willing buyer and willing seller basis after taking into account the business prospects of the company, the replacement costs of the assets and similar transactions in Brazil.

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The acquisition is expected to be completed in 2Q13 and will be funded by internal resources. The target group has been established in Brazil since 2006 and is principally engaged in the cultivation and processing of sugar cane for the production and marketing of ethanol and sugar, as well as the cogeneration of electric power from sugar cane bagasse.

Currently, the group operates one mill in Vale do Tijuco which was completed in 2011 with a total crushing capacity of 3m metric tonnes per year, and can be expanded to 3.8m metric tonnes.

This is the long-awaited acquisition from IFAR following the listing of Salim Invomas (SIMP IJ, Outperform) in June 2011. We are positive on this acquisition as it will allow the group to expand into the sugar and ethanol businesses in Brazil and boost its earnings base. 

Secondly, this will partially change the market’s perception of the stock, which is seen as a holding company with a 72% stake in SIMP as the
group does not directly own any operating assets. 

We continue to favour the stock due to its attractive valuations in terms of assets, and expect this acquisition to boost the future earnings of the group.

More details about this transaction are expected to be made available at a scheduled analyst teleconference tomorrow.