Core vs non-core

Written by Indronil Roychowdhury | Updated: Aug 13 2014, 04:57am hrs
Balmer Lawrie, the mini-ratna PSU under the petroleum ministry but a conglomerate with presence in both service and manufacturing sectors is slowly emerging as a bigger player in its non-core avenues.

Although better known as a grease and lubricants manufacturer, its logistics and infrastructure services business and industrial packaging segments have become key profit earners. The companys tour and travel segment has started picking up with profit in the segment nearly doubling in the latest quarter. But the grease and lubricant segment posted a loss, denting the companys bottom line in the first quarter of the current fiscal.

The company reported a near 29% dip in net profit to R25 crore for the quarter to June against a net profit of R35 crore in the same quarter last fiscal. The turnover during the period saw a 6% year-on-year increase to R725 crore against R683 crore clocked in the same period a year-ago.

Segment results show that greases and lubricants, a core vertical, had a loss before tax of R0.15 crore during the quarter against a profit before tax of R7.04 crore a year before.

Segment-wise, the companys tours and travel business has clocked the highest revenueR325.08 crore, growing by nearly 4% year-on-year. But profit before tax from this business jumped nearly 93% y-o-y to R4.89 crore from R2.54 crore.

Logistics and Infrastructure services fetched the highest profit before tax at 27.67 crore, registering a 4.45% y-o-y growth. Profit before tax in the industrial packaging segment grew 3.44% y-o-y at R13.21 crore.

Value additions are really happening in such non-core areas of business. Balmer Lawrie has lost money in the grease and lubricant vertical though capital employed in this vertical has increased during the quarter against a decrease in capital employment in the tours and travel segment, a director said, not wanting to be identified.

Capital employed in the lubricant and grease segment during the quarter went up to R198.42 crore from R127.23 crore a year ago. But capital employed in the tours and travel segment was marginally down to R150.70 crore from R152.05 crore.

Although our grease and lubricant segment performed badly this quarter, this doesnt mean that the segment will end up making losses this fiscal. There were various global factors that determined our lube business and those may get corrected in the course of the year, the director said adding the company was constantly formulating innovative business strategies to make the best use of its resources.

The company exited from its marine freight container business and tea warehousing, blending and packaging business last year since these were taking up a lot of management time without generating revenue. It deployed the proceeds from such exit to other business opportunities.

In February this year, the travel and tour vertical acquired premier holiday operator Vacations Exotica for an undisclosed amount and the deal included acquisition of the business and people of the private tour operator. The companys tour vertical functions as the largest travel agent providing domestic and international travel and ticketing, besides travel and tourism-related services. The deal helped in further strengthening its foothold in the domain.

Packaged tours business, especially outbound, has reasonable entry barriers and better margins. So it would be an advantage for big players like Balmer Lawrie to expand into that space, a company official said.

Today, Balmer Lawrie has seven business unitslogistics infrastructure, logistics services, tours & travel, industrial packaging, greases & lubricants, performance chemicals and refinery & oil field services, with plants and offices spread across the country and abroad. It has joint ventures in the UK, UAE and Indonesia.

Its present focus is on product innovations at Balmer Lawrie UAE, the joint venture that manufactures steel drums, tin and plastic containers.