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Published on Tue, Nov 25, 2008

UPDATE 1-KS Oils' new refinery to boost FY10 revenue

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  • KS Oils acquires new refinery for up to 1.5 bln rupees
  • New refinery at Haldia; has geographical, cost benefit
  • To ramp up existing capacities, not looking at further acquisitions for now.

MUMBAI, Nov 25 (Reuters) - Edible oil maker KS Oils Ltd (KSOI.BO: Quote, Profile, Research) hopes to generate 6 billion rupees in revenue annually from FY10 from its newly-acquired refinery at Haldia, a top official said on Tuesday, sending its shares up over 9 percent.

The firm expects an operating profit margin of 9-10 percent from the new refinery next fiscal.

Earlier in the day, the company said it had agreed to acquire the refinery, its first in east India, for up to 1.5 billion rupees. This would raise its total refining capacity to 1,800 tonnes crushed per day.

The shares, which had been up 5 percent before the news, extended gains to a high of 42.90 rupees, before ending the day at 7.9 percent higher at 42.45 rupees in a weak Mumbai market.

"There is tremendous demand. We're importing so much and that shows people are bullish on this sector. I need to provide to my customers if they ask for so much," Managing Director Sanjay Agarwal told Reuters over the telephone.

The acquisition comes at a time when edible oil makers in India are reeling from a supply glut and low prices due to a surge in cheap imports, but Agarwal said it would provide the company geographical benefits and save on transport costs.

"It gives us value by de-risking our business in terms of geography, transportation and a new customer base," he said.

India's edible oil imports rose to 787,000 tonnes in October, their highest level in 14 years, as palm oil prices in Malaysia, the world's leading producer, fell 29 percent since Oct. 1.

The acquisition of the refinery, which the company bought from Ambo Agro Products Ltd, will be funded through a mix of debt and internal accruals, Agarwal said.

KS Oils, in which Citi Venture Capital has a 12.4 percent stake, has received in-principle approval for debt funding from banks, he added.

The firm is looking at doubling the new refinery's existing capacity to 1,000 tonnes crushed per day with an investment of 600 million rupees, in 6-8 months, Agarwal said.

The company is not looking at any more acquisitions for now, he added. "We are concentrating on our current capacities now. If I look at the near future, there are no acquisition plans."

In the quarter-ended September 2008, the firm posted a net profit of 422.2 million rupees on net sales of 7.3 billion rupees. (Editing by Sunil Nair)