CG Power to start creating cash next year and pay debt: Tube Investments MD

In an interview with Business Standard, Vellayan Subbiah, MD, spoke on how the acquisition fits in the firm's strategy and how it plans to turn around CG Power

Tube Investments of India (TII) of the Murugappa Group has acquired debt-ridden CG Power for Rs 1,700 crore as part of its de-risking strategy from auto business. Managing Director Vellayan Subbiah spoke to T E Narasimhan on how the acquisition fits in the firm’s strategy and how it plans to turn around CG Power. Edited excerpts:
 

What is the rationale behind CG Power acquisition and how will it help TII?
 

We started looking at areas of growth for TII about two and a half years back. Organically, we can grow it at around 6-8 per cent a year over a cycle, but we set a higher threshold for growth at around 17 per cent topline per year over a period of time. The only way to achieve this is inorganic, in addition to organic. Our dependency on auto is around 70 per cent. We want to get into businesses that are not as cyclical like auto, and we don't want to pay a premium to acquire them. The model is going to find a third quartile business, acquire it but not at a premium valuation and focus on turning it around. CG Power businesses also have opportunities for the next 50-60 years.
 

What are the other capabilities you found in CG Power?
 

Value systems. They are very similar to ours. The businesses also have got opportunities for the next 50-60 years of significant growth areas.
 

What will be your focus for the next 12 months?
 

The first lots of clean-ups need to be done, and then the focus will be putting operations back on track. We have identified 8-9 areas to focus on, including total quality management, production system like basic product discipline, working capital management.
 

The second set is improving the platforms by investing in research and development since all three businesses are technology-intensive. Making the right investments and bringing partners would be another focus. The third is people, suppliers, and customers. We will go and talk to them and tell them sorry whatever happened has happened, now in the foreseeable future, they should see this as a steady company. Focus is not the near-term. Our plan is that CG Power should be with us for at least another four generations. We are not worried about this quarter or next. We are looking at long-term. I am overall bullish. In the next 4 to 5 years it can generate Rs 5,000 crore revenue and Rs 500 crore profit before tax.
 

How will CG Power’s debt come down?
 

The only way is to generate your cash and that is our focus. Next year it (CG Power, which will be a subsidiary of TII) will start generating its cash and will start paying the debt.
 

Will it become cash-positive next year?
 

Would like to think so. Whether we will shape it up decently and profitable next year? Absolutely.