Andrew Yule & Co, with business interests in engineering, lubricants, tea and other sectors, has been offloading stakes in its power and engineering units. Still a Board for Industrial & Financial Reconstruction (BIFR) company, Andrew Yule is trying to script a turnaround by getting out of non-performing business entities and exploring new verticals like non-conventional power. Chairman Kallol Datta talks to Indronil Roychowdhury about the way forward for the company so that it can return to the growth trajectory. Excerpts:
Andrew Yule has sold its stake in Phoenix Yule and offloaded its 15% holding in DPSC. What has the company gained from it?
The sale of stakes in Phoenix Yule and DPSC meant an exit from bad businesses. These two companies were non-performing assets and were actually eating into our profit potential. The BIFR formulated for us a package that in order to come out of the Board we were supposed to sell our stakes in many of our group companies. But after exiting from Phoenix Yule and DPSC, it seems that we may no more require selling stakes of our group companies and we are on the threshold of a turnaround. By selling the stakes in Phoenix Yule and DPSC, we raised Rs 100 crore, from which we repaid a government loan of Rs 62.26 crore. This was a great relief to our company.
SREI consortium bought your stakes in DPSC at a very high price and even the second highest bidder Descon?s offer didn?t have a big gap with that of the highest bidder?s offer. Why were the stakes offloaded at such a high price despite DPSC not doing very well?
The SREI consortium didn’t buy at a very high price; instead, they got business at a very cheap rate. The cost of putting up a 40-mw plant would have been Rs 200 crore at least at a rate of Rs 5 crore per mw and creating a distribution network would have cost an additional Rs 200 crore. So, the price they paid for acquiring our stakes was nothing compared with the cost the consortium would have incurred in putting up such a facility. We could have got a higher price if big players in the power sector like the Tatas and Reliance participated in the bid. But somehow, legal hassles kept them out of it.
Do you think exiting from DPSC was a wise decision as business prospects in the power sector have started looking up?
DPSC was a non- performing asset for us and so, there was nothing wrong in coming out of that business. But we are planning to enter into non-conventional power business. We don?t intend to produce power but we want to manufacture power-producing equipment like hydraulic turbines, solar photovoltaic cells and solar generators. These equipment will have huge demand in our country since there will be a lot of activity in non-conventional sectors of power in the coming years. Our country has enormous hydro- power potential to be realised in the near future. We also have big plans in solar energy. We are already in talks with a number of foreign firms like Italy?s Toyefeioro for technical collaboration. But we are yet to finalise anything. The investment required to get into this business is yet to be worked out, but it is certain that we are entering into this new vertical.
Are you holding back your decision of selling 26.22% stake in Tide Water Oil?
We don’t want to sell Andrew Yule?s stake in Tide Water Oil because this business is doing very well under our management control. Tide Water Oil achieved a 36% production growth over a period of four years and its production has touched 64,000 kilo litres (kl) in 2009-2010 from 4,7171 kl in 2005-06. Tide Water?s gross sales over the period of four years has gone up by 145%, at Rs 750 crore in 2009-10 whereas in 2005-06, it was Rs 304.74 crore. Profit before tax jumped from Rs 10.09 crore in 2005-06 to Rs 85 crore in 2009-10 and earning per share has gone up by 697% over a period of four years. Then, why should we sell our stake in this business?
Right now, Tide Water is the highest revenue contributor to the group and its dividend payout to the government is going up every year. It paid a dividend of Rs 300 crore to the government in 2008-09, just double than what it paid in 2005-06. This year, it is going to further increase. With Andrew Yule?s debt burden almost clear, it makes no sense to sell more stakes. But this is my personal opinion and the board is yet to take a decision on it, followed by the ministry?s decision. So, we have to wait to see what finally happens.
The Andrew Yule group is into diversified sectors, from tea and lubricants to engineering solutions. Which business do you want to focus on?
First, our focus will be on engineering solution because it has a wide scope of expansion and great revenue earning potential. Second, Tide Water Oil, because it has been giving us the maximum margin followed by our tea business. And third, our engineering division will put us to better margins in the near future.
What is Andrew Yule?s growth plan? What is your capital expenditure plan for 2010-11 and which business will get the maximum investment? Are you looking for inorganic growth?
We are planning a capital expenditure of Rs 15-20 crore in 2010-11, but I cannot tell you in which businesses we are going to invest how much. We are planning to foray into power (non-conventional) equipment manufacturing and we are also exploring opportunities to make system design for controlling air pollution or providing solutions for air pollution control. Both these verticals can come under engineering division and so, our focus is easily understandable. We are also focused on tea, in which we have already invested around Rs 6 crore for its development. While we are coming up with our new brand of packet tea, we are bullish about developing our business of green tea and organic tea. But, nevertheless, weour emphasis is on increasing the market intervention of our existing brands?Yule Gold, Yule Red and MIM. Most importantly for our tea business, we are constantly in the process of replantation and every year, we undertake replantation of 150 to 200 hectares of the 5,000 hectares we hold in Darjeeling, Doars and Assam. If things go on in this way, tea will also continue to give us margins, but engineering has the highest potential. So, our growth plans are all organic and there are no inorganic growth plans as of now.