Revival through recast

Duncans Industries (DIL), the flagship company of the Goenka-managed Duncan Group, wants to stay focused on its fertilisers business by transferring its tea operations to another group company. This move is timely as it reflects the company’s desire to stress core competence as tea and fertiliser businesses do not gel well. Both divisions suffered underperformance as a result. The restructuring will help redeem the situation, besides consolidating the group.

Tea operations will be hived off to a group company, Shubh Shanti Services (SSS), eventually to be amalgamated with Santipara Tea Company. Currently, the tea business contributes nearly 18 per cent to the group’s sales income. Its sales realisation is better than that of the fertiliser division. However, the tea division suffers from asset under utilisation. Tea estates alone account more than 95 per cent of fixed assets. This includes revaluation of assets carried on January 1999 due to the amalgamation of Duncan Agro with DIL.

Post-restructuring, the balance sheet size will be a third of the original size.

DIL will focus on manufacturing fertiliser at its Kanpur factory having an installed capacity of 6.75 lakh tonne per annum. This will be a cause of worry, considering the fact that per hectare consumption of fertilisers in India is only about 85 kg, much lower than in many developing countries.

Once fertiliser subsidies are done away with, high cost of inputs like naphtha, gas, etc may affect the fertiliser business. Only an increase in fertiliser usage and demand from user sectors can help the company. In such a scenario, the fertiliser division cannot but be fully alive to meet the future challenges and maintain leadership in a growing market.

After restructuring, the two focus areas would be spearheaded by independent managements. The company, meanwhile, had obtained a nod to extend the financial year by a period of six months. Tea business, which sources the commodity from various tea estates of West Bengal, is primarily engaged in the marketing of black tea, both in bulk and blends. It has brands like Double Diamond, Runglee Rungliot and Shakti. The annual tea production of DIL before restructuring was 17 million kg, while that of Santipara tea was eight lakh kg.

In the fertiliser segment, its urea product under the brand name Chand Chacha was successfully relaunched. The fertiliser division continues to derive mileage from this brand.

SIV Industries
SIV Industries’ default on loan interest payment, including external commercial borrowings (ECB)s, need not surprise those who have been tracking its record for the past few years.

While operating revenue showed a steep decline to Rs 196 crore in 1999-2000 from Rs 421 crore in 1995-96, total debt swelled to Rs 494 crore from Rs 270 crore during the same period. By the end of March 1999, the company’s peak networth eroded by over 50 per cent.
It has since turned into a potential sick unit as defined in the Sick Industrial (Special Provisions) Companies Act (SICA).

As per the restructuring plan, lenders are willing to help the company by lowering the interest rate and lengthening the repayment schedule of its loans. Though they are keen on restructuring SIV Industries, it all depends on whether the promoters’ bring in additional capital of Rs 35 crore under the rehabilitation package. The lenders may not be able to convince the promoters to chip in their contribution in the absence of their initiative to turn the company around. The representatives of the promoters on the SIV board have reportedly resigned without the consent of the lenders. Since the promoters are willing to contribute only Rs 10 crore, the entire exercise may be jeopardised.

SIV Industries was considered to be one of the major domestic competitors for Grasim Industries in viscose staple fibre (VSF) business. Besides thesluggish market conditions for VSF, the company’s slackness to make necessary adjustments to adhere to pollution control norms resulted in under utilisation of its production capacity.

The company diversified into other unrelated areas such as seeds and agro products, edible oil, tissue culture and engineering in a bid to reduce its reliance on rayon and VSF business. That did not help matters either. The company started recording losses at the operating level and its problems were compounded as the interest burden was fast rising, which dragged the bottomline further into the red. It is only a matter of time before the company becomes a terminal case, unless efforts are made to nurse it back to health.