Alistair S.

Accounts Analysis: Aditya Birla Group and Domsjo Fabriker

Company Profile:
Domsj Fabriker was a Swedish refinery located in rnskldsvik that converted raw forest
materials into specialty cellulose, lignin, and bio-ethanol. In 2000 it was spun off from the
forest company Mo och Domsj AB (MoDo), of which it had been a part since the early 20th
century, and later sold to a private consortium.

ABG Acquiring Domsj Fabriker - Reasons:

Aditya Birla Group, for eight years, was a steady customer of Domsj Fabriker. For the
Aditya Birla group, the cutting-edge technology and the clientele were the main reasons for
buying it for $340 million.
The main reason for the acquisition was to have guaranteed long-term uninterrupted supply
of pulp. Since pulp was almost entirely imported in India due to restrictive norms a
company can't own forests having a captive raw material source through Domsjo would
minimise the uncertainties for the Birlas to a large extent.
To the chairman of the Aditya Birla Group, Kumar Mangalam Birla, acquisition of the
Swedish pulp maker was of top priority as ABG needed to feed their fast growing viscose
fibre business (VSF) that currently controls a stake of 20% in the global market.

The Purchase:
Aditya Birla Group had acquired Sweden-based speciality pulp and bio-refinery company
Domsjo Fabriker for about Rs. 1,500 crore ($340 million) through its international
subsidiaries Thai Rayon Public Company and Indo Bharat Rayon (Indonesia) from a
consortium of six individual investors.
Both the international subsidiaries jointly funded $180 million for the buyout, while $160
million was raised by them through a special purpose vehicle and the remaining debt of $75
million was raised by Domsjo Fabriker for expansion of capacity on its books.

Post-Acquisition Benefits:
The group already owned about 390,000 tonnes of pulp. With Domsjo, Birla now has an
additional 255,000 tonnes of pulp. Apart from captive linkages, Birla's attention was drawn to
the technological prowess of Domsjo. Technology was an area that the Birla group has been
keen on, of late.
Adding to it, the Group is now currently able to source 80 per cent of its pulp requirement
through captive means from the current level of 55 per cent. About 25 per cent of the Domsjo
Fabriker production is used in premium applications such as binding agents for medical
products, particularly pharmaceutical tablets and in casings (wraps) for the food industry.
VSF business contributes to about 10 per cent of the Aditya Birla Group's turnover. Postacquisition, VSF turnover has now increased to $2.7 billion from $2 billion. Seeing the break
through success, Aditya Birla Group has currently lined up investments amounting to Rs.
3,150 crore for VSF expansion.