Mumbai: The Mumbai- and Kolkata-headquartered group, RPG Enterprises, whose companies operate in businesses such as retail, technology, power, entertainment and plantations, is preparing for a major restructuring and reorientation of operations which will involve an investment of at least Rs15,000 crore.
The restructuring blueprint involves building an international presence in power generation and transmission, expanding local manufacturing capacity in tyres, repositioning the retail and entertainment businesses and entering new businesses such as building power substations, creating railway infrastructure, biotechnology and agriculture.
RPG also plans to acquire companies and technologies in the information technology and entertainment businesses, both in the domestic and international markets.
RPG ended 2006-07 with revenues of Rs10,913 crore, a market capitalization of Rs8,314 crore (several of its businesses are managed by privately-held companies that are not traded), a net profit of Rs636 crore and a net profit margin of under 6%.
Harsh Goenka, chairman of RPG said the group had tried restructuring its businesses earlier but failed to get the desired results because of “operational issues”. “Operational inefficiencies and cost control have, of course, been a major driver of growth but restructuring has removed a lot of financial inefficiencies and also made the balance sheets (of group companies) far stronger,” he added.
Goenka, who along with his younger brother Sanjiv runs the group, said RPG would not find it difficult to raise the Rs15,000 crore it plans to invest in growing its businesses.
“Funds should not be a problem as we have strong internal cash flow from group companies. We can always opt for debt instruments and also an initial public offer of the retail arm,” Goenka added. He declined to give details of the cash flows of the companies.
The group expects to grow its revenues to Rs33,719 crore by 2011-12, by which time it expects the market capitalization of listed group companies to be around Rs46,000 crore.
RPG’s estimates include a market capitalization of Rs8,000 crore for the retail business, which is currently not listed. It did not provide an estimate of profit after tax in 2012.
The targets seem aggressive, said an executive at an audit and consulting firm, who did not wish to be identified. However, he added RPG, “which has a proven sectoral base across all key areas it is present in” could meet these targets if it adapts itself to “modern market requirements”.
RPG Enterprises plans to merge KEC International Transmission Ltd, Nitel Ltd and RPG Transmission Ltd. Following this, the merged entity will also enter the business of constructing towers for telecom and tower companies and has earmarked Rs500 crore for this. It will also look to grow its transmission business in other countries.
“We have been operating in the markets such as Iraq, Libya, Afghanistan and Kazakhistan. Now, we will be entering into the US market. Towards this, we have formed a joint venture with Power Engineers, a company based in that country, for bidding power transmission projects.
“We never had the courage to enter into the developed markets, but with strong balance sheet we would be able to compete with international companies in the US,” said Goenka.
RPG also plans to streamline the functioning of all group companies including CESC Ltd, Noida Power Co. Ltd, CEAT Ltd, Phillips Carbon Black Ltd, Harrisson Malayalam Ltd, KEC International Transmission Ltd, Zensar Technologies Ltd , RPG Life Sciences Ltd, Spencer’s Retail Ltd, Music World and Saregama by setting up separate investment arms for each company. “With this move, we intend to separate the operating part of these individual companies from investment activities to give more focus,” Goenka added.
After a break-up with foreign partner Dairy Farm International Holdings Ltd in 2005, the group’s retail venture, Spencer’s Retail is being repositioned with the help of an international consultant, according to Goenka. He said the group also plans an initial public offering for its retail venture but did not give any time frame for this.
“The positioning of Spencer’s is going to be the key element. The ambience and service experience of the outlets will place this above the existing players. Still, customers will be able to find a product at a reasonable price,” Goenka added.