Itc Agro, Conagra Alliance May Unveil Global Brands

ITC Agro-Tech has been scouting for a strategic alliance with an international food company to bring the necessary product knowledge, technology and operating skills into the country. ConAgra is the fourth-largest food company globally and the second largest in the US. Its strengths lie in areas like agri-inputs, agri-commodities and branded, packaged foods, besides having a food service chain.

ConAgra has 21 brands with retail sales in 1995 exceeding $1 billion. It has been planning an investment of $550 million this fiscal to broadbase its marketing network and has been seeking an alliance with ITC Agro-Tech.

ITC Agro-Tech board has cleared placement of 65,00,000 equity shares of Rs 10 each at a premium to the US firm and a formal approval is expected at the annual general meeting scheduled be held here on September 26.

 

While ITC Agro-Tech is yet to determine the premium, sources said it could range between Rs 40 and Rs 50, depending on the average market price over the past six months.

So far, ITC Agro-tech has been able to popularise only the Sundrop oil edible brand though it has built up a strong grocery distribution system. The company had recorded a net loss of Rs 17.97 crore for 1995-96 against Rs 6.09 crore in the previous year.

Company sources attribute two key elements for the adverse financial performance last year. First, the debt equity ratio at over 3:1 was high due to the foreclosure of capital leases and the failure of the company to come out with its proposed rights issue in November last.

This has resulted in high interest charges of Rs 19.95 crore and a strain on liquidity.

Second, the company has taken a one-time, extra-ordinary charge of Rs 18.45 crore in the previous year which includes Rs 8.19 crore the company incurred as a result of the sudden depreciation of the rupee in October last.

Low capacity utilisation at ITC Agro-Tech's integrated oilseed processing complex in Mantralayam was also a reason for the poor performance. This was mainly because of the inadequate availability of sunflower seeds in the proximity of the complex.

Besides, the government decision to allow edible oil import under open general license and the recent reduction in the tariff structure from 30 per cent to 20 per cent are likely to affect the bottomline of the company.

Keeping these factors in mind, the company has decided to sell the entire Mantralayasm undertaking to its principal ITC Ltd, at a slump price of Rs 112 crore. While this will bring down the interest costs as the sale proceeds could be utilised to repay the debt, the company will enter into a license agreement with ITC to retain its access to the complex.