Divested We Stand

With this decision, Mr Bharat Ram managed to retain control over the relatively minor DCM-Benetton Ltd "" the readymade garments joint venture where speculation is rife about the Italian giant demanding majority stake.

* Siel Ltd, promoted by Siddharth Shriram, is in the red with a loss of over Rs 5 crore in first six months ending March 1996. The poor results have forced the company to extend its financial year by six months in the hope that its performance will improve.

* SRF Ltd, run by Arun Bharat Ram, has defaulted in paying Rs 70 crore the final instalment for taking over Ceat's nylon cord division "" on time. The company is working out a new payment schedule and is looking at divesting in certain businesses to pay off its dues.

 

* Vinay Bharat Ram's DCM Ltd is under growing pressure from several companies which are planning to proceed against them for defaulting in repayment of inter-corporate deposits(ICD).

Several years after the Shriram family decided to part ways, various factions are in deep trouble. A severe cash crunch, poor financial management and numerous diversifications which did not pay off, have suddenly thrown one of the country's premier business groups into a major crisis.

Reflecting on what lead to the present crises, a Bombay-based analyst who has been closely watching the various Shriram factions says: " After the split the companies suddenly realised that they were unable to negotiate attractive terms from banks and FIs for funds as they used to as one family. It was then that the lala-run management and its weaknesses came to the fore. Financial management in the companies have much to be desired.

Take Siel Ltd for instance. After making a profit of Rs 36 crore in March 1995, there was a dramatic decline in profits especially at a time when the company had just made fresh investments in expanding its sugar crushing capacity.

Siel made three mistakes. One, the company doubled its sugar crushing capacity with an investment of Rs 50 crore but received its license from the state government to crush sugar in March this year. As a result, the plant which was ready for operation in September last lay unutilised during the peak season. Worse still, the company was forced to crush cane whose quality had deteriorated and had to sell it at a loss.

Second, the company overestimated the demand for compressors which have a high import content of components. While it built up stocks in anticipation of high demand, sales were way below the anticipated level.

Third, Siel made massive losses in its trading division because of its decision to distribute fertiliser at government-fixed prices.

To get out of the woods, the company has formulated a two-pronged attack. One, it is getting out of fertiliser distribution. And, second, it has decided to divest its equity in certain key businesses to pay off the interest burden. The funds will also be used to partly fund the Siel-Honda passenger car joint venture.

It has already applied to the courts to spin of the compressor business into a separate company and hive off 50 per cent of its equity to its German collaborator. The Shrirams expect to rustle up Rs 50 crore from the deal. Similarly, the company has also decided to hive off 50 per cent equity in India Hard Metals. The cash generated is expected to help improve the company's bottomline.

Divesting equity in various businesses is also a strategy being followed by Arun Bharat Ram to take SRF out of the red. SRF Ltd, which acquired Ceat's nylon tyre cord fibre plant, agreed to pay Rs 325 crore for the deal and planned an investment of over Rs 200 crore for expansion and modernisation.

The company expected to finance the acquisition and the expansion plans partly through a GDR issue and a partly through convertible debentures. But with market conditions not conducive enough, it went in for short-term borrowings which forced a four-fold increase in its interest burden from Rs 22.08 crore in 1995 to Rs 83 crore in 1996.

As a consequence, SRF has not been able to pay Rs 75 crore due to Ceat as the last instalment. Company executives however say that the payment will be made pending clearance of some legal issues in the deal.

SRF has already charted out a fresh plan of action to pay the dues. It is divesting 49 per cent equity in three key businesses. The polyester film division is being spun off as a separate company and the Shrirams would divest 49 per cent of their holding. Similarly, the company has decided to hive of 49 per cent of its equity in the vision care division and group company, Shriram Needle Bearing Industries Ltd. Talks are also on between the Bharat Rams and the US giant, GE capital, for the latter's stake in SRF Finance. The company has also decided to go in for private placement of shares worth Rs 80 crore to finance its on-going expansion plan.

Similar problems seem to have forced Vivek Bharat Ram to walk out of DCM Daewoo Ltd. He was unable to rustle up Rs 187 crore to subscribe to his share of the proposed Rs 700 crore rights issue. As a result, the family's share in the company came down from 34 per cent to around 10 per cent. In fact, talks are on to change the company's name by deleting the word DCM from it.

While the Bharat Rams were not available for comment, sources close to the group said that the decision was a painful one. Vivek Bharat Ram and his brother, Vinay Bharat Ram, who controls DCM Ltd, had to take a crucial decision on whether to put in the money in the car company or use it for investments in DCM's real estate development project.

Insiders say that the decision was taken for two reasons. One, Daewoo had ambitious plans in the country and had a blueprint to invest as much as $1 billion in the next few years. The family, insiders say, realised that it might not be possible for it to bring in matching funds to maintain their existing equity.

Two, Daewoo with 51 per cent equity already controlled the management and day-to-day affairs of the car project, with the Bharat Rams having very little say. hence, the family thought it would be more prudent to put in its resources in the real estate project. However, this decision has come at a time when DCM Ltd is in deep trouble. The company has borrowed over Rs 70 crore to finance its projects. In addition, it has defaulted in paying its dues.

Its total borrowings stand at Rs 350 crore. The company admits that it was forced to resort to inter-corporate deposits to meet the cash flow mismatch. As a consequence, numerous companies which had borrowed money are up in arms and have threatened to sue the company. They have even refused to roll over the loans as requested by DCM Ltd.

However, the company expects to realise more than Rs 500 crore from its real estate project through sale of residential flats and flatted factories. With the recent government clearance to building plans for the 54 acre project, its problems are expected to ease, say insiders.

It also hopes to pay back its debtors partly through the sale of DCM Daewoo Motors shares and partly through internal accruals. It has been able to bring in fresh funds by agreeing to an increase in the equity of the Singapore consortium of NRIs in DCM Estates and Infrastructure Ltd. The Bharat Rams have already rustled up Rs 54 crore for the 32 per cent stake and hope for a fresh infusion of funds through the hike in equity. Divesting stakes might be a way out for the various Shriram factions but there is no denying the fact that the premier group's reputation has taken a serious beating.