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After turning profitable, new zest to acquire defines Kirloskar

After turning profitable, new zest to acquire defines Kirloskar
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First Published: Mon, Sep 22 2008. 07 44 AM IST

Back from the brink: When the Kirloskar group split, Vijay Kirloskar inherited companies mired in debt.
Back from the brink: When the Kirloskar group split, Vijay Kirloskar inherited companies mired in debt.
Updated: Mon, Sep 22 2008. 07 44 AM IST
Bangalore: Nearly eight years after the split in the Kirloskar business empire, Vijay Kirloskar can consider acquisitions and talk growth strategy again.
At the time of the split, the Bangalore-based grandson of the group’s founder, Laxman Rao Kirloskar, inherited seven companies and debt that amounted to nearly two-thirds of turnover. Unable to service the debt, the group almost went under, before recovering by restructuring and retiring part of its debt, selling off some real estate assets and reducing the workforce from 4,600 to 2,000.
This year, the flagship company, the publicly listed Kirloskar Electric Co. Ltd, or KEC, will record about Rs1,100 crore in revenue and a net profit of Rs75-80 crore, Kirloskar said. These numbers exclude revenue of €48 million (Rs316.32 crore) that will be added from the German firm Lloyd Dynamowerke GmbH (LDW) which it acquired recently for an undisclosed price. The KEC share closed Friday on the Bombay Stock Exchange at Rs107.80, up Rs3.80 from the previous day.
Kirloskar spoke about the company’s plans in a wide-ranging interview. Edited excerpts:
Given the progress this year, what kind of growth rate are you seeing?
Our first quarter growth rates have been good, top line growth has been almost 30%, so we definitely hope to cross Rs1,000 crore this year between Kaytee (Switchgear Ltd) and KEC. We’re merging another transformer company Kirloskar Power Equipment (KPL), which we bought 15 years ago from Voltas. When you add (that) turnover, we’ll do about Rs1,100 crore comfortably.
Back from the brink: When the Kirloskar group split, Vijay Kirloskar inherited companies mired in debt.
We want to have a PAT (profit after tax) of close to 7%. There will be some pressure on us this year because of the increase in steel and copper prices.
In KEC we make transformers, and KPL is (a maker of) specialized transformers of higher capacity. But I have two different marketing arms so we said we’ll merge the two together. That is a debt-free company, so it will help here. Debt equity ratio, current ratio, all this will look better.
You still have debt of Rs40 crore…
It has to be repaid by 2010. This year I have to pay Rs34-35 crore…and we have some preference shares with IDBI (Bank Ltd).
What’s the structure now? How much do you hold in the listed entity even after you bring in the transformer company?
Equity will be close to Rs50 crore when this takes place. The Bombay high court and Karnataka high court have passed (the order for merging KPL). We have not got the actual decrees from the court. When the merger takes place, it (promoter’s holding) will go up by a couple of percentage points...49%...maybe less.
How does LDW, the German company you acquired, help?
(At present we manufacture) 20MW in motors and generators, LDW goes up to 50MW. They make motors for oil, motors for nuclear power (plants) and electric propulsion motors for ships. So these are all new markets for us.
On the other hand, when they want 1MW or 2MW machines, our costs are much better and significantly lower than theirs. We will use (the German company) as a staging base. We’ll have a channel to sell KEC products through this company in Europe. So I have a servicing place there, I have a design place there and they also manufacture products which we don’t.
Their designs are more efficient than mine. They do research with universities of Zurich, Bremen and Hamburg on how to reduce cost of products or how to make them more efficient. So we get access to all this through the company.
Will LDW add to the turnover of Rs1,100 crore you expect? What is its current turnover?
No. Its top line last year was €48 million. This year it will earn close to 3% Ebitda (earnings before interest, tax, depreciation and amortization) though they probably had a little bit of a loss last year. Overall, we will be around Rs1,400 crore (including unlisted entities).
How are the other parts of your group doing?
Kirloskar Batteries is Rs30 crore (revenue), Kirloskar Computers is dormant now. The trading arms in Malaysia and Singapore had revenues of $2 million (Rs9.4 crore) and $3 million, (respectively).
Kirloskar Computer Services Ltd (KCS) was fairly early into information technology and you were a pioneer. What will you do with KCS now?
That’s not my core business right now. I want to use that company for something else, but not for software. There are many options we would like to look at.
What about the batteries’ business?
We are into industrial batteries right now, and I am looking at what is the business value there. Unless I get into the auto sector, which requires an investment. Let me build this company (KEC) up first, LDW and the other company in the transformer business.
We want to get into switchgears in a bigger way. We make only up to 22kV class switchgears, we can go up to 33kV, 66kV. In motors, we are going into bigger motors for steel mills and cement plants.
Do you think that you should have held on to the land, since you sold almost at the bottom of the market?
It caught me by surprise because I was looking at the whole group at the time. A lot of our systems were not there for Rs500 crore (which was the company’s revenue in 1997) We had grown too fast, that’s probably one of the reasons why we got into this kind of trouble. That was probably only 20%. We could have gone to the bankers earlier, but the same bankers came to us and said don’t go to BIFR (Board for Industrial and Financial Reconstruction), we’ll support you. That’s why we went through a court-ordered restructuring. That was...a much more amicable settlement with the bankers and I think we also got the benefit of their unstinted support. We still have 110 acres in Hubli, 30 acres in Mysore and a couple of plants in Bangalore.
What’s the succession plan?
We brought Deloitte to look at how to do this restructuring and also bring in succession planning. Let’s see what they bring in.
There are a lot of capable young people in this organization, we’ll probably decentralize more to make them more responsible.
My daughters (Rukmini and Janaki) are involved in the business right now. However, they have to earn their wings. We also have a management team in place who have been with me through this.
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First Published: Mon, Sep 22 2008. 07 44 AM IST