M P Birla To Sell Off Cement Arms

The M P Birla group flagship, Birla Corporation, is considering disposing of all the four cement units, with a total capacity of 3.91 million tonne.

The cement business accounted for 75 per cent of the group's gross revenues of Rs 873.3 crore in 1998-99.

The move, sources said, had been insisted on by financial institutions, which own the single-largest holding in Birla Corporation.

The sale of the cement business is critical for the flagship's survival as it has sunk deep into the red. It has incurred losses for two successive years. And the company's net worth eroded by more than 50 per cent during the period.

 

Merchant banking sources said that Birla Corporation started negotiations with at least three multinationals, including Holderbank of Germany, Lafarge of France and Blue Circle of the UK.

The sources added that Birla Corporation managing director K C Mittal had already begun making presentations to the multinationals. Mittal's office in Calcutta confirmed that the chief executive was "out of the country".

Merchant bankers expect that taking a conservative replacement value of Rs 3,200 to Rs 3,500 a tonne, the deal could fetch Rs 1,250 to1,375 crore.

The M P Birla group holds around 28 per cent in the company, while the institutions_UTI, LIC and GIC_own over 40 per cent stake. FI sources confirmed that the Birlas had been asked to look for a buyer for the cement business to clear debt and save the company from being referred to the Board for Industrial and Financial Reconstruction.

Birla Corporation's units are spread over Satna in Madhya Pradesh (1.55 million tonne), Chittor in Rajasthan (1.6 million tonne), Durgapur in West Bengal (6 lakh tonne) and Raebareli in Uttar Pradesh (3.6 lakh tonne).

While the Raebareli and Chittor units produce fly ash-based pozzolona cement, the Durgapur unit manufactures slag cement. Samrat is the company's flagship cement brand.

If the cement business is eventually sold, the businesses Birla Corporation will be left with include jute products, synthetic and cotton yarn, PVC goods, industrial gases and auto trims, which together earned Rs 220 crore in 1998-99. And most of these business are yet to overcome the effects of recession.

The company had a total outstanding debt of Rs 309.9 crore last year, with around Rs 184 crore being attached with the cement division. After posting a combined loss of over Rs 105 crore in 1997-98 and 1998-99, it incurred a loss of over Rs 32 crore in the first three quarters. It net worth, as a result,

has dipped from around Rs 240 crore to around Rs 104 crore in this

period. The company's turnover has also been declining over the past three years due to the downturn in the cement business. Birla Corp has suffered primarily due to locatational disadvantages, with prices in MP, Bengal and Rajasthan belts being the worst over the 3-year long cement sector recession.