Pennar Industries setting up unit in Chennai

Expects Rs 150cr turnover from the facility in 3 years

Pennar Industries Limited (PIL), engaged in the production of cold-rolled steel strips, metal profiles and engineering components, is setting up a manufacturing unit near Chennai to produce value-added steel products and components for the auto sector, particularly for its existing customers including Ashok Leyland, Hyundai, TVS Group and the Integral Coach Factory at Perumbur.

The company has acquired a 35-acre site on the Chennai-Tirupati road for the Rs 25-crore facility, the first phase of which is expected to be completed in the next three months.

The Chennai unit will be the company's fourth facility. Currently, it has two manufacturing units near Hyderabad and one at Tarapur in Maharashtra.

"The Chennai unit is expected to give us a turnover of Rs 150 crore per annum three years down the line," company's chairman Nrupender Rao told Business Standard, adding that the new facility would eventually have an installed capacity of 30,000 tonnes per annum.

In July 2006, two foreign funds - Eight Capital of New York and Spinnaker Capital of London- invested Rs 122.4 crore in PIL. Of this amount, the company had utilised Rs 107 crore for retiring a major part of its long-term debt. The remaining Rs 15.4 crore is being invested in the Chennai facility.

"With the arrival of foreign investors, we are seriously working on taking up the activity of manufacturing outsourcing. In this connection, we are also looking at either acquisition of a manufacturing unit in the US or entering into a strategic tie-up with a medium-scale American company. After three years from now, you will not think us as a steel rolling company at all," Rao said.

PIL, which had been referred to the Board of Industrial and Financial Restructuring (BIFR) in 2003 following accumulated losses and complete erosion of its networth, made a turnaround in 2005-06.

The company reported a big jump in sales and profits for the 16-month financial period ended July 2006. Its turnover and net profit during the period soared to Rs 645.9 crore and Rs 41.67 crore respectively from a turnover of Rs 369.65 crore and a loss of Rs 4.81 crore posted during the 12-month period ending March 31, 2005.

According to Rao, a three-pronged strategy of business restructuring, productivity improvements and financial restructuring had helped the company achieve a turnaround.

As a part of business restructuring, the proportion of value-added products to total sales was increased from 20 per cent to 50 per cent.

By improving manufacturing operations, the company had been able to improve its productivity from 87 per cent to 92 per cent. The power consumption was reduced resulting in energy savings.

Similarly, in early 2004, the Corporate Debt Restructuring Forum (CDR) had approved a debt-restructuring scheme. This resulted in bringing down the company long-term debt from Rs 245 crore to Rs 185 crore by 2005.

With the debt amount being high even after the implementation of the CDR scheme, Rao said, the company had restructured its debt for the second time in July through infusion of foreign capital.