Hyderabad: Visaka Industries Ltd (VIL), a Rs389-crore Hyderabad-based company with interests in asbestos cement sheets, textiles and garments, plans to restructure its business by selling off its garments division in Chennai and spinning off its cement sheets and textiles into separate companies. The recast also involves setting up or acquiring a cement facility.
The board of directors on Friday approved the proposal to divest the garments division, which has been incurring losses mostly due to appreciation of the rupee and reduction in financial support from a government’s export scheme.
“Apart from competition from low-cost and well subsidized countries such as Bangladesh, Indian garments business may also face pressure from China's freedom from quota (quantitative restrictions) from January next year," said K.V. Soorianarayanan, VIL’s senior vice-president of finance. It is expected to exit the business in a month or so. VIL has invested a total of Rs10 crore in the garments unit.
However, said Soorianarayanan, the proposal to hive off the two other divisions into separate companies would take more time as the company board is yet to consider and approve the proposal.
VIL also plans to set up a new cement plant or buy an existing one with an annual capacity of up to one million tonne (mt) at an investment of Rs350 crore. This marks the return of the company to cement nearly a decade after it set up a 1mt cement factory for Rs300 crore in 1997, only to sell it off to India Cements Ltd.
An analyst saw supply benefits in VIL’s cement foray. “The entry into the cement business is a backward integration for the asbestos business and may help expand Ebitda margins going forward,” said Nitin A. Khandkar, senior vice-president of research at Keynote Capitals Ltd.
“However, we view it as positive only to the extent of the captive use of cement produced, for manufacturing asbestos sheets, as cement itself is likely to be in oversupply over the next two-three years with strong possibilities of prices coming under pressure,” Khandkar said. Ebitda, short for earnings or profits before interest, tax, depreciation and amortization, is indicative of the core profitability of a company’s operations.
VIL buys close to 250,000 tonnes of cement for asbestos cement sheets production.