Prakash Industries to demerge PVC business into separate entity

The PVC pipe business contributes nearly 10% to the company's total income

Steel and PVC (polyvinyl chloride) pipe manufacturer Prakash Industries is planning to demerge its business to allow the resultant entities to grow independently with their own focused vision, strategies and operations.

Under the demerger scheme, the company would demerge the PVC pipe business into a separate entity with a focused vision for growth, the company said in a BSE filing.

The PVC pipe business contributes nearly 10 per cent to the company's total income. Of the total income from operations posted at Rs 520.70 crore for the quarter ended December 31, 2016, Prakash Industries reported Rs 55.66 crore contribution from the PVC pipe segment. The steel and power segments contributed the rest.

"The demerger will not only enable both the businesses to grow independently with their focused vision, strategies and operations, but also contribute significantly towards unlocking the potential value of the business for the shareholders," the company said in a statement.

A more pure-play company, having a singular business, is also preferred by the investors as the business follows a focused and sector-specific growth strategy, thereby counteracting the conglomerate discount and enhancing the value of the business.

The proposed demerger shall also protect the respective businesses from each other's risk, including industrial and economic slowdown, change in regulatory policies and other market forces, the statement said.

The businesses will also have a sharper focus on their production, supply chain and end-user market, which shall provide higher growth impetus with superior margins, better asset turnover and a healthy return on capital in the future years. In view of the current industry scenario and industry trends, both the steel & power and PVC pipe sectors have a huge growth potential in the coming years.

Budget 2017 has focused on housing, rural economy, infrastructure spending and railways, which shall not only boost the economic growth of the country but also revive the domestic steel demand by providing it with the required impetus to achieve the long-awaited growth in the sector.

Regarding the PVC pipe industry, going by the continued growth trajectory witnessed in the sector coupled with improving prospects in the agricultural and housing sectors on account of huge capital outlays by the government in Budget 2017, the sector has tremendous growth potential.

For the nine month ended December 31, 2016, the turnover and earnings before interest, taxes, depreciation and amortisation of the PVC pipe business has grown by 14.22 per cent and 20.40 per cent, respectively, as compared to the corresponding period for financial year 2016.

The company's share was trading flat at Rs 82.80 apiece, a decline of 0.10 per cent on Tuesday.