Caborundum Universal Ltd (CUMI) is looking at options, including selling its stake in Foscor Zirconia, a subsidiary in South Africa, as the business has not turned around over a period of time. The profit before interest and tax for the quarter ended June 30, 2019, was adversely impacted, amounting to about Rs 6 crore due to losses in this subsidiary.
The company has two options -- one, to shift the factory to a location where it can produce at a lower cost and another, to sell if off to a buyer and move out. The company said that it is likely that it would move towards the second option because there is a pressure locally to keep the jobs in South Africa, said senior management officials in a recent earnings call.
The plant produces monoclinic and calcia stabilised zirconia with fumed silica as a by-product, which could be used in various applications, including ceramic colours, abrasives, chemicals and refractory products for the glass and steel industries.
The plant produces between 2,800 to 3,000 tonnes of three grades of Zirconia, all of which is sold in Europe, India and the US. While the product is good, the company is still losing money.
"If you make more, we can still sell more, so the options with us was one, whether to relocate the plant and take it out and put it in a more, let us say, lower cost, manageable location and scale up. The other option was to find a buyer to whom we sell and move out. Today, it is moving towards the second option because there is a pressure locally to keep the jobs in South Africa, so that is the direction it is going," K Srinivasan, managing director, Carborundum Universal Ltd, told analysts in a recent earnings call.
"Any transaction would also facilitate our continuing to be engaged in either getting our requirement for India or for any other market that we address, so that will be part of whatever we will eventually settle, so we will take that into consideration when we finally exit, so this is the negotiation that is going on and we will announce as and when it happen. We will keep in mind, our interest to be seller in this market, we are a player in this and that will be in part of the transaction," he added.
A product that was recently launched from this plant, Z450, has been technically accepted, but it has not scaled up to the extent and level that the company expected. If it had, then Foskor Zirconia would have quickly come out of trouble and that was the company's expectation. While a few coveted customers continue to buy it, the company has not received large breakthrough orders yet.
"We will have to see how we are going to handle it once we take a final call on Foskor Zirconia. At the moment, it would remain Foskor Zirconia product," he added.
According to the company website, the Foskor Zirconia plant was commissioned in 1991 as a gravity separation plant and in 2008, Carborundum Universal Ltd (CUMI) had taken a 51 per cent operating shareholding in Foskor Zirconia (Pty) Ltd. A State-owned enterprise in South Africa holds the rest of the shares in the company. It has earlier shut down two plants -- a bubble zirconia plant and Thukela Refractories -- in South Africa and relocated them to India.