Weir Group expands in India with £40m deal

Published on Wednesday 1 September 2010 21:09

Weir Group is set to double business in India after swallowing a fast-growing valves business based in the subcontinent for an eight-figure sum.

• Keith Cochrane sees deal as a chance to expand in emerging markets

The swoop on the valves division of BDK Engineering Industries is the latest in a line of bolt-on deals which have boosted the size and reach of Glasgow-based Weir.

Yesterday's agreement is thought to be worth about 40 million, although the Scots firm declined to disclose financial details. It is expected to be completed in early October, subject to tax clearances.

Weir - tipped as a possible entrant into the FTSE 100 after next week's index reshuffle - will double its sales into India as a result of the acquisition. BDK's operations, which employ some 600 people, will be added to Weir's existing Bangalore businesses serving the minerals sector and the power and industrial market.

BDK makes valves used in the oil and gas, petrochemical and power markets. It generated sales of 20.9m during the year to 31 March, and had gross assets of 16.7m.

Although the deal will barely dent Weir's acquisition war chest, worth an estimated 500m-600m, the move could prove quite lucrative given India's long-term prospects.

Earlier this week, government officials put a figure of 8.8 per cent on India's economic expansion during the three months to the end of June - confirming its status as the second-fastest growing economy in the world.

In a note to investors, analyst Andrew Douglas of Royal Bank of Scotland also highlighted BDK's growth in recent years, which has been in the region of 20 per cent per annum. This, plus the acquisition of Malaysia's Linatex due to complete later this month, should have a positive impact on Weir's financial performance next year.

"In the more near-term, Weir is on the cusp of entry into the FTSE 100 and still trades on a multiple that we feel is attractive in the current market, even on our conservative … assumptions," said Douglas, who retains a "buy" rating on the shares.

The deal is in line with Weir's stated intention to expand through both organic growth and acquisitions, as outlined by chief executive Keith Cochrane. Weir's engineering operations are focused on the oil and gas, minerals and power and industrial sectors, and the group remains particularly keen on high-growth markets.

"This acquisition further strengthens our emerging market footprint," Cochrane said in a statement yesterday. "BDK's range of valves will enhance our global customer offering and its Indian sales network will provide an additional route to market for many of our existing products."

Weir's share price has soared since Cochrane took over the top post in November, though it is widely recognised that much of the group's performance is down to work led by his predecessor, Mark Selway.

Last month, Weir posted a 58 per cent surge in underlying first-half profits, which reached a record 144m.

The group hoisted its interim dividend 25 per cent - the largest increase in more than a decade - as a show of optimism in its prospects despite an "uncertain global economic recovery".

The results were fuelled by a 5 per cent-plus jump in profit margins to 19.5 per cent, which was partly due to a high proportion of better-margin "aftermarket" - or maintenance - revenues.