Olam

Olam: Announced a partnership with the Russian Dairy Company, LCC (“RUSMOLCO”) for the large scale development of dairy and grains farming in the Penza region of Russia. The first step under this partnership is the investment of up to US$75m by Olam for 75% of RUSMOLCO. This translates into RUSMOLCO enterprise value of up to US$130m, owners of RUSMOLCO will hold the remaining 25%.

In the first phase of expansion spread over the next 4-5 yrs, RUSMOLCO will invest to expand the area under grains cultivation from the current 52k ha to 106k ha. In addition, four new modern dairy farms will be constructed, taking the total milking cow population from the current 3.6k heads to 20k heads.

Olam is anticipating this invt could yield EBITDA margin of 35-40%, net margin of 15-20%, equity IRR of 28%. However RUSMOLCO is currently loss making since it is at an early stage of development but Olam mgmt believes that the invt may be cash-positive from FY2013E and profitable from FY2014E.

Both JP Morgan and Goldman are of view that acquisition is still in early days and will see limited impact on current earnings.