 "Avantha pays price for gamble on growth")
On July 5, soon after Ballarpur Industries (BILT) announced that it will sell its two oldest units to rival JK Paper, Avantha Group’s Chairman, Gautam Thapar, 55, wrote an emotional letter to employees: “The previous one year has been a period of stress and anxiety for all. Ballarpur and Asthi are our oldest units. Without your hard work and loyalty, we would not have made BILT a household name in paper in India and abroad. I thank each one of you for your dedication and more than 60 years of loyalty.”
The reason for the desperate move to sell the units was known the next day when BILT announced that the sale of its Malaysian subsidiary for $500 million has collapsed as the buyer could not arrange for funds. This was bad news for the company as it was pinning its hopes on the deal to bring the loss-making BILT’s debt down by Rs 2,500 crore from around Rs 6,300 crore.
| SELLING SPREE |
Assets on the bock
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Ballarpur had acquired the Malaysian unit for $260 million in 2006 and had invested additional $200 million to expand its capacity. The sale would have helped it to exit at a time when the group needs the cash the most. Take a look at its financials: BILT, which made a profit of Rs 197 crore in fiscal 2010 on sales of Rs 3,882 crore, plunged into losses of Rs 160 crore in the year ending March this year on revenues of Rs 4,181 crore. Its debt almost doubled from Rs 3,591 crore in 2010.
BILT officials say the breakdown of the deal is a hiccup as there is a new buyer from China which is already in the queue. This is apart from the erstwhile buyer, Pandava Sakti, which is trying to arrange for funds to renew the deal, BILT CFO B Hariharan says. “Sabah has a large forest for its operations and there is interest for this asset among Chinese buyers. With the JK deal, a significant portion of our debt will be removed,” he adds.
BILT is not alone
It’s not only BILT — the Avantha Group is on reset mode. Two other group companies, Crompton Greaves and Avantha Power, are selling assets to keep their head above water. Group insiders say it was the group’s foray into the power sector in 2005 which resulted in the group’s financial metrics deteriorating. At the same time, Crompton took over 11 companies in Europe including ZIV ($185 million) in 2012, QEI Inc ($30 million) in 2011 and Emotron AB ($83 million). It announced in March this year that it will sell ZIV for about Rs 850 crore to cut its debt.
With falling cash flow and foreign acquisitions failing to make money, the group was unable to repay loans, which led to lenders asking it to sell assets. During fiscal 2013 (the last available), the total operating income of Avantha Power stood at Rs 3.87 crore, as compared to previous year’s Rs 7.32 crore, with PAT of Rs 11 crore (previous year: Rs 25.65 crore). While the power company was fast losing money, the foreign acquisitions hit the other two businesses also.
Analysts say the group’s overseas strategy backfired as debt-backed acquisitions by both Crompton Greaves and BILT failed to make money. “The acquisitions in Europe by Crompton and in Malaysia by BILT took the group on the brink. The promoter also shifted base from India to London to look after foreign businesses and took the eye off the ball,” says a Mumbai-based analyst. “The crisis is not over as yet and the group will have to sell more assets in India including its tower in Worli, Mumbai, to repay loans.”
Thapar says in 2010, the group was to list its holding company in India and abroad to grow its businesses in India with cheap capital. But the global and Indian economic slowdown and external factors such as natural disasters prevented the group from raising the required capital. “This prompted the board to begin the divestment of the pulp business in Malaysia in 2015 as a step towards correcting our capital structure and bringing down our debt,” Thapar wrote in his July mail to employees.
Hariharan says the group’s debt has come down to Rs 9,500 crore. This was after it sold the Korba power project to Adani Power in 2014 for Rs 4,200 crore and Crompton sold its consumer durable business for Rs 2,000 crore to a clutch of private equity investors last year. There are more assets for sale. Apart from BILT’s Malaysian asset, bankers say the group is in talks to sell its Jhabua power project at a valuation of Rs 4,500 crore to a Mumbai based power company.
Though the group is taking several steps to come out of its crisis, the jury is still out on whether the group will be able to ride out the storm.
