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How the Trade War Foiled a Billionaire's Chemical-Buying Spree

Anuchit Nguyen and Lee Miller
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How the Trade War Foiled a Billionaire's Chemical-Buying Spree

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India-born billionaire Aloke Lohia’s global acquisition spree for chemical plants was designed to give Thailand-based Indorama Ventures Pcl more pricing power. But Donald Trump’s trade war has spoiled the party and driven its shares to a record slide.

Indorama’s operating margin has hovered around 4% to 5% the past year, the narrowest since late 2015, as a global economic slowdown sapped demand for its synthetics used in fast fashions and plastic bottles.

The stock -- once a standout with a record share price in 2018 -- has dropped 31% since June 30. It registered an unprecedented fourth-straight quarterly loss, according to data compiled by Bloomberg.

“There is little optimism for any quick recovery as the ongoing trade dispute may continue to hurt profit margins,” said Sutthichai Kumworachai, an analyst at Maybank Kim Eng Securities (Thailand) Pcl. “Hope for any rebound would now be in 2020, when most unfavorable factors are expected to subside.”

Lohia has accelerated Indorama’s acquisitions overseas, including investments in the U.S., Nigeria and India, as the company aims to spend $5 billion through 2023 to expand production to meet the demand of customers that include Nestle SA, L’Oreal SA and Zara owner Inditex SA.

The shares have lost 48% from a record in May 2018 as the U.S.-China trade dispute and slowing global economic growth eroded demand, while higher material prices raised production costs.

Indorama Ventures declined 1.5% on Monday to close at the lowest level in a week. The drop exceeded the 0.4% fall in the benchmark SET index of equities.

The recent acquisitions will “unleash” growth when the market environment turns favorable again,” Dilip Agarwal, head of Indorama’s feed stock and PET business, told investors at a presentation last month.

The company couldn’t be immediately reached for comment on the share-price slide.

The drop makes the stock attractive as Indorama is among “the most resilient” chemical companies with its diversified businesses and integration, according to DBS Vickers Securities (Thailand) Co.

Indorama’s stock traded at about 8.4 times the company’s 12-month earnings estimate, almost half of the average multiple of 15.3 in the past five years, according to Bloomberg’s data.

Nineteen analysts recommend buying the stock, while four suggest holding it and none advise selling the shares. The average 12-month price target is 47.21 baht, about 45% more than the last close.

Earnings are expected to improve in the six months through December on “volume and margin recovery” bolstered by operations in the U.S. and India, said Duladeth Bik, an analyst at DBS Vickers.

Lohia set up his company in Thailand in 1994. It now operates manufacturing facilities in 101 sites and 31 countries in five continents, according to the company’s website.

(Updates share price in the seventh paragraph.)

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net;Lee Miller in Bangkok at lmiller@bloomberg.net

To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Margo Towie, Naoto Hosoda

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