Ceat to merge arms to boost balance sheet

The tyre maker of the RPG Enterprises, Ceat, plans to consolidate its operations by merging three subsidiaries with itself.

The merger of three subsidiaries, Ceat Ventures, Ceat Holdings and Meteoric Industrial Finance Company with Ceat was aimed at strengthening the balance sheet of the tyre company, said the sources.

Of the three investment companies, Ceat Ventures and Ceat Holdings are in the red while Meteoric Industrial Finance Company, posted profit last year.

"The board, however, has not taken any decision on the merger issue. It may discuss the issue at a meeting after September 23," said the sources. The RPG Enterprises spokesperson declined to comment.

The Ceat board will meet on September 23 to consider a rights issue. Financial institutions associated with the company were of the opinion that merger of the subsidiaries would make Ceat balance sheet attractive which would in turn help the company envince shareholders' interest to the rights issue.

The investments companies have equity stake in virtually all the group companies such as CESC, CFL Capital Services, Harrisons Malayalam, KEC International, Phillips Carbon Black, RPG Transmission, RPG Cables, RPG Life Sciences and Saregama India.

According to the annual report for 2004-05, Ceat has given loans and advances to these subsidiaries of over Rs 140 crore.

Sources also said Ceat, a part of Rs 8400 crore RPG Enterprises, might hive off "unutilised real estate," in line with the group's decision to cash in the real estate boom. It has hived off surplus land of Saregama India and Zensar Technologies.

Ceat has reported 8 per cent rise in turnover for the year ended March, 2005. The company clocked a turnover of Rs 1,780.31 crore in comparison with 1,647.95 crore in the corresponding period of last year.

The growth in turnover was supported by a 27 per cent growth in exports, from Rs 215.89 crore to Rs 273.18 crore. Gross profit before depreciation, taxation and extra ordinary items of Rs 14.34 crore for last year despite a sharp increase in cost of raw materials and loss of production at the manufacturing facility at Nashik for two weeks. It incurred a net loss of Rs 2 crore.

The company expects an improved performance this year with top-line likely to exceed Rs 2,000 crore. Increase in sale prices of tyres, coupled with gains on account of VAT and the expected stabilization of raw material prices are likely to help it in achieving better profitability.