CESC restructures business into four companies to unlock value

Power business will be divided into two while retail arm will become third company

RP-Sanjiv Goenka Group's flagship company, CESC Ltd, on Thursday announced restructuring of the company's business verticals into four distinct companies which will be listed on the country's bourses by October 1 this year.

As per the demerger, the group's power business will be divided into two - generation and distribution while its retail arm, led by Spencer's Retail will become the third company. The rest of the company's business verticals, which includes its BPO arm, Firstsource Solutions, sports division, New Rising Promoters, the real estate wing, Quest Properties India, the FMCG division, Guiltfree, and others will form the fourth entity.

The group's current flagship company, CESC Ltd, will take over the distribution business while the other three companies will be listed on BSE, NSE and the Calcutta Stock Exchange.

The generation wing will be named Haldia Energy Ltd while the retail division will be christened RP-SG Retail Ltd. The entity which will have the rest of the businesses will be named RP-SG Business Process Services Ltd. However, these names can be changed at a later date.

The company's entire power generating capacity of 2,550 MW will be brought under one single umbrella while the distribution rights for Kolkata, Howrah, Greater Noida, Bikaner, Kota and Bharatpur will be bifurcated to form another entity. Currently, both these operations come within the direct scope of CESC Ltd.

The company's chairman, Sanjiv Goenka termed the process as a mirror image demerger stating that the current shareholders of CESC Ltd, one of the group's listed entities, would get the same proportion of shares in each of the four entities.

For every 10 shares of CESC Ltd, a shareholder will be getting five shares of Rs 10 face value in the distribution and generation companies, two shares of Rs 10 face value in RP-SG Business Process Services Ltd and six shares of Rs 5 face value in RP-SG Retail Ltd.

The total share capital will also be increasing by 50 per cent from Rs 132 crore to Rs 198 crore as a result of this exercise.

The face value of the company's shares will be halved from Rs 10 to Rs. 5 which will reduce Rs 66.28 crore from its existing share capital. This amount will be credited to the capital reserve account of the company. Subsequently, two shares of Rs 5 each will be consolidated into one equity share of Rs 10 each.

"In the strictest sense, we cannot call it bonus to the shareholders. Call it a gift or return on investment, but further shares of Rs 66 crore will be issued", Goenka said.

Both CESC Ltd and Haldia Energy Ltd will have a share capital of Rs 66 crore each while RP-SG Retail Ltd will have Rs 40 crore. RP-SG Business Process Services Ltd will have a share capital of Rs 26 crore.

"There will not be any holding company in between following this restructuring and whatever debt each current business entity is having will get into the books of the entity to be formed post the demerger", he said.

On a consolidated basis, CESC Ltd has a liability on Rs 26,072 crore of which the power sector comprises 22 per cent of the liability share of retail is 1.2 per cent. The consolidated assets account for Rs 37,904 crore of which the share of power and retail business is 88 per cent and 1.5 per cent respectively.

The process also involves amalgamation of its different subsidiary units like CESC Infrastructure Ltd, Spen Liq, New Rising Promoters and Crescent Power among others.

Goenka had indicated that the group wants to reduce its emphasis on government intervention intensive sectors, which includes power and captive mining, and instead focus on areas like retail and FMCG which will become the group's future growth drivers.

In the next one year, the company plans to bag at least two more power distribution rights and scale up Spencer's Retail's presence by another 2-3 lakh square feet from the current 12 lakh square feet in the eastern part of the country.

To grow its FMCG business, while the company is on the lookout to widen the portfolio, it has acquired one company. However, Goenka refused to provide further details on the acquisition.

The idea of the demerger was planned internally although the company later consulted KPMG and Grant Thornton India to finally arrive at the blueprint.

In the coming five years, the company is targeting to reach a near Rs 30,000 crore topline from the current Rs 14,202 crore while focussing on increasing the bottomline.

For the quarter ended March 31, 2017, the company's net profit remained flat at Rs 295 crore as against Rs 293 crore in the similar quarter of the 2015-16 fiscal year while the topline increased by 8.4 per cent at Rs 1,631 crore as against Rs 1,504 crore in the quarter under review.