Corporate Front: Restructuring [Is JK Corp Selling off Lakshmi Cement?]

CORPORATE FRONT: STRATEGY
Is JK Corp Selling Off Lakshmi Cement?

In addition to the synthetics division, it too may be ripe for disinvestment.

By Rajeev Dubey

Harsh Pati Singhania The capital was just recovering from an unusually harsh winter earlier this year, in February, 1998, when Hari Shankar Singhania, 65, the chairman of the Rs 754-crore JK Corp, played host to a team from a Canadian cement major. After a hurried presentation on JK Corp's cement division, Lakshmi Cement, the visitors were quickly flown down from Delhi to the company's 2-million tonnes per annum unit at Sirohi (Rajasthan) where, shivering under a weak mid-morning sun, its workers gaped back at the Canadians.

While the Canadians haven't made up their mind, the word is out: JK Corp could be the next victim of the Great Cement Shakeout. For, the Rs 3,283-crore H.S. Singhania Group is no longer averse to hiving it off. Admits Harsh Pati Singhania, 36, Deputy Managing Director, JK Corp: ''We are examining a number of options in restructuring it,'' adding: ''If we believe that a joint venture, or creating a new entity will solve the problem, we are open to the idea as long as it enhances shareholder value.''

Obviously, Singhania is willing to put the cement plant on the block to salvage a conglomerate that reported a net loss of Rs 96.80 crore in 1997-98. And, in the first quarter of 1998-99, ran up a net loss of Rs 38.65 crore on a turnover of Rs 158.34 crore. While a part of this can be attributed to the polyester division, Orissa Synthetics-which JK Corp unsuccessfully tried to sell off to the Rs 14,127-crore Reliance Industries late last year-Lakshmi Cement has also played a part in dragging the company into the red.

Because of the slowdown in the economy, accentuated by the demand-supply imbalance in the cement industry, Lakshmi Cement's net realisation has dropped by 24.70 per cent: from an average of Rs 1,481 per tonne in 1995-96 to Rs 1,115 per tonne in 1997-98. Simultaneously, capacity utilisation went down from 72 per cent in 1996-97 to 62 per cent in 1997-98. Admits Singhania: ''All our businesses are passing through a difficult cycle but, due to the large volumes involved, cement is faring the worst.''

What makes matters worse is the fact that Lakshmi Cements' capacity was expanded last year-from 0.60 million tpa to 2 million tpa-at a cost of Rs 635 crore. Worst of all, while 9.90 million tonnes of capacity will begin production in 1998-99, 6 million tonnes of this will service Lakshmi Cements' main markets of Rajasthan and Gujarat. Warns Anil Singhvi, 36, the CFO of the Rs 979.17-crore Gujarat Ambuja Cements: ''Even existing plants in Rajasthan will find it very difficult. No new plants in the region may be able to survive.'' Adds Rishi Bansal, 26, Senior Research Analyst, ICRA: ''Since many large cement players are consolidating, it makes sense for small players to get out of this business.''

Thus, Singhania is running out of options. As in the cement business, JK Corp's net realisations in synthetics have crashed by 49.35 per cent: from Rs 83.71 per kg in 1995-96 to Rs 42.40 per kg in 1997-98. And, despite its premium positioning, JK Corp has been able to just break even in its paper business. So, JK Corp is pleading with the Industrial Development Bank of India (IDBI, 1997-98 income: Rs 6,109 crore) to reschedule the Rs 1,054.75 crore it has borrowed from the financial institutions.

If the IDBI doesn't help out, JK Corp could end up at the Board for Industrial & Financial Reconstruction soon. To prevent that, not only will Orissa Synthetics have to be sold, Lakshmi Cement-which, BT estimates, will fetch anything between Rs 85 crore and Rs 175 crore after accounting for its accumulated liabilities of Rs 635 crore-too will have to go. And, as he tries to strike a deal, its state-of-the-art facility may be Singhania's only chip to cement the deal with.

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