Olam acquires sugar milling facility in India for US$73.8m

What’s New
Olam announced this month positive newsflow in the form of an important milestone milling facilities in India for US$73.8m. With the stock up 8% in the past two weeks alone, its current valuations no longer look compelling, particularly our rating to HOLD.

Our View
Olam recently acquired a 3,500‐tonne/day sugar milling facility and related assets in India for a total consideration of US$73.8m and has plans to invest a further US$6.6m (total US$80.4m) to expand capacity to 5,000 tonnes per day. The book value of the assets is estimated to be US$70m. We expect this sugar mill acquisition to be the first in a series, with management having expressed interest in this field at the company’s results briefing last month.

The successful completion of the gas due diligence for the Gabon fertiliser project marks a major milestone, given that the plant’s feasibility hinges on whether the Republic of Gabon can provide this low‐cost feedstock over a 25‐year period. When fully operational, the project would account for approximately 15% of Olam’s net profit target of US$1b for FY Jun16.