SPIC in 4-pronged growth strategy

The Southern Petrochemical Industries Corporation (SPIC) has charted out a four-pronged growth strategy now that its corporate debt restructuring (CDR) is underway. Revitalisation of operations, monetising of assets, disinvestments and better management practices are the four main constituents of the strategy.

Ashwin C Muthiah, vice-chairman, at a media briefing here today, unfurled his strategies to take the fertiliser company forward. "The restructuring of floating rate notes (FRN), which was a cashless transaction, was the best thing that has happened for SPIC in a while," he said. He is confident that the worst patch is over for the company.

As reported earlier, the reworked terms of the $120 million FRN will rid the company of a Rs 215 crore debt. The note holders had agreed to convert half of the notes into rupee denomination. In the conversion, the value of the notes were cut by 35 per cent to Rs 29,000 for every $1000.

In recognition of the discount accepted by the note holders, SPIC will be paying a higher interest of Libor-plus 2 per cent compared with Libor-plus 1.5 per cent it paid on the old notes. The company is also in talk with its innumerable bankers to get its a CDR moving.

"Beyond the CDR, we want to focus on improving our EBIDTA (earnings before interest, depreciation and tax)," Muthiah informed.

Towards this end, the plan is to leverage the SPIC brand in marketing and distributing other agricultural products (outside its own fertilisers) and to launch big time into tissue culture with bananas the first prime product.

"We have to exploit our intangible assets as well. I am hoping that in the next two-three years we will be making about Rs 500 crore from leveraging the brand alone," he said.

On the tissue culture front, he said that India is one of the largest producers of bananas and Tamil Nadu tops its production base. The company's Agro Biotech Centre in Coimbatore, has the capacity to produce 10 million plants.

But the company is currently producing only one million plants. "Next financial year, we are looking to scale this production up to 2-3 million plants," Muthiah explained.

Loaded with non-performing investments, SPIC is also actively considering exiting some of its earlier investments. "The idea is to shore up our reserves," Muthiah added.

Prime among this is the much talked about Indo-Jordan Chemicals Company Ltd. "Though the company has been doing well we have not been able to declare dividends. To us it is now a good asset but not a revenue stream," Muthiah said.

He expects to close the deal during the financial year. SPIC is also in dialogue with its partner in the project in keeping with the disinvesment clause.

The next in line is likely to be the pharmaceutical division at Cuddalore, which manufactures Pencillin-G. But Ashwin Muthiah is in no hurry.

"We need to first revitalise the business before we disinvest," he said. The focus will be on putting fermentation plants to better use in making enzymes, contract manufacturing or even pencillin derivatives, he added. This will be done before the unit is put on the block.

The company has also been working on shrinking its costs and increasing efficiencies. Between 2002 and now, the company has shed between 400 and 500 employees at its Tuticorin site and another 200 people from its corporate office. The separation process is still on.

At the instance of the banks, Haldor Topoi of Denmark has been appointed to audit the energy efficiencies of its plants and also evolve long term and short term strategies on this.

The company is also in talks with vendor for implementing ERP solutions. Towards better corporate governance, the company took the aid of Price Waterhouse to set up a management assurance group that will independently monitor feedbacks on the processes and delegation of power that it has put in place.

The road ahead

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• Revitalisation of operations, monetising of assets, disinvestments and better management practices are 4 main constituents of the strategy.
• SPIC in talks with bankers to get CDR plan going
• Company will leverage SPIC brand in marketing other agricultural products
• SPIC will exit some of its earlier investments