Exiting bad investments may revive Sanjay Dalmia's fortunes.

By Alam Srinivas

A meeting with Sanjay Dalmia, 53, the chairman of the eponymous Rs 1,393-crore group, reveals a wide range of facets. When he is emotional, the discussion will invariably turn to how his family gave away Bennett, Coleman & Company--which publishes The Times Of India--as a dowry gift to the Jains. And if he is in a serious--religious, ideological, or political--frame of mind, the Member of Parliament from the Samajwadi Party lashes out at the Bharatiya Janata Party (BJP).

However, Dalmia is at his best while elaborating on the future of his business empire. He always has five or six ambitious projects to talk about. Indeed, considering the turbulent times, it is difficult to make out whether he is a gambler or just a glib talker. And it is even more difficult to judge the future of his empire because most of his group companies are facing an acute cash crunch. Dalmia himself is not sure about the future of his existing businesses. He says: "Since there is little scope in traditional areas, my companies are looking at new segments."

Two major indicators prove that the crisis is real. First, most of the group companies, except the Rs 361-crore Gujarat Heavy Chemicals Ltd (GHCL), are in trouble. The flagship, the Rs 642.15-crore GTC Industries, has been referred to the Board for Industrial & Financial Reconstruction (BIFR). The Rs 79.67-crore Dalmia Industries' profits too have been declining consistently over the past two years and net profits accounted for only 1.04 per cent of the company's total turnover in 1995-96. Even the nascent paging services outfit, dss Mobile Communications, is yet to break even although Dalmia claims that it will happen in 1998-99. Second, Dalmia is juggling with investments to generate profits in individual companies.

For, most of his ambitious, but nebulous, plans have come a cropper in the recent past. His plans to take over the Uttar Pradesh government-owned UP Cements Corporation--the deal was cleared by the Mulayam Singh Yadav Administration in mid-1991--has been blocked by the BJP. Similarly, the group's forays into fields like media--through the Sunday Mail newspaper--and paper--through the purchase of two sick units--have flopped.

In fact, GHCL is the only gamble which has paid off after initial hiccups. After being in the red for years, GHCL, and running up accumulated losses of Rs 47.23 crore on an equity base of Rs 72 crore on March 31, 1991, has emerged as the money-spinner of the group. Its net profit margins stood at an impressive 13.65 per cent in 1996-97. That may be the reason for a takeover threat from Karsanbhai Patel's Rs 908.91-crore Nirma Group.

GHCL has drawn up an optimistic plan that envisages the expansion of the existing 4-lakh tonnes per annum (TPA) soda ash capacity by 1 lakh tpa in two phases, at a total cost of Rs 180 crore. The company also seeks to diversify into the high-end salt segment, which is growing at 27 per cent per annum. The proposed investment for the 4-lakh tpa salt unit: Rs 82 crore. Says Girish Mehta, 62, president (finance & administration), Nirma: "It is a logical diversification for them since the soda ash units consume salt."

But the future of GHCL still seems uncertain. Its proposed expansion comes at a time when the stranglehold over the 16.16-lakh tpa soda ash market exercised by three manufacturers--the Rs 1,677.88-crore Tata Chemicals (capacity: 8.50 lakh TPAt; GHCL; and the Rs 580.43-crore Birla vxl (capacity: 3.35 lakh TPA)--is threatened by both internal and external competition.

For instance, Nirma, which consumes about 25 per cent of GHCL's total production, is planning to set up a Rs 1,100-crore soda ash-salt-detergent unit that will be commissioned by September, 1999. Says Mehta: "We have already procured 30,000 hectares of land and spent Rs 200 crore on the project." Nirma's 4-lakh tpa unit will produce enough to meet its own requirement, forcing its competitors, including GHCL, to search for new buyers. Moreover, imports of soda ash are on the rise, reaching nearly 75,000 tonnes in 1996-97. Given this scenario, most of the existing soda ash manufacturers have decided to stall their expansion plans. But senior executives at GHCL maintain that the market is growing at 6 per cent to 8 per cent a year, and that this demand growth will be able to absorb the increased production.

However, Dalmia is facing his worst cash crunch in GTC. The company may have to pay an additional Rs 430 crore if the demands of the excise and income-tax authorities are supported by various courts. In fact, this fear prompted GTC to provide huge sums in its Profit & Loss account against future liabilities, which turned the company sick under the Sick Industrial Companies (Special Provisions) Act, 1985.
Despite running towards the safety of the BIFR, GTC still has to face the excise authorities. Especially as it has decided to reduce the number of litigations for small amounts through out-of-court settlements. Although GTC is cash-rich, with net profit margins of around 15 per cent, it has already been forced to offload its investments to generate the requisite cash. The 18.17 lakh shares held by GTC in GHCL were sold to wholesalers and distributors who were considered close to the promoters. Further, GTC's stake in dss Mobile Communications, worth Rs 1.28 crore at face value, was sold to GHCL.

On top of this, the investments made by GTC and its subsidiaries in Raigadh Papers and Premier Paper Mills--quoted at a total of Rs 76.96 lakh at par value--have been written off. Says Dalmia: "There is nothing wrong in this practice of generating funds as all the investments will remain within the group, either in the listed companies or in its investment arms." He, however, refuses to divulge the names of the buyers of the GHCL shares that were disposed of by GTC. The logic behind writing off its investments in the two paper mills is quite clear from the fact that the units have been closed and all the workers have been paid off. However, when the paper mills were taken over, the group claimed that they could be turned around, which later proved to be a mere pipe dream.

Instead of planning new ventures, Dalmia's priority today must be to ensure that his existing businesses don't go up in smoke. For that he must ruthlessly divest the dogs, nurture the cash cows, and hunt for stars. Can Dalmia wave his wand again?