“The agreement between us remains in force, but the realities have changed," Poddar said in an interview on Thursday—a day after his open offer for MCF’s shares ended with an oversubscription. Once the shares are transferred to Zuari in a fortnight, the company will have a 53% stake in MCF, making it a Zuari subsidiary.
“It is clear that Mallya doesn’t have any plan to run this company," Poddar said. “I have no problem working with Mallya, but the new realities will have to be evaluated."
Poddar has pulled off two key acquisitions in less than two years, both trumping competing bids. “One took only two hours of discussion to clinch, the other two years," he said referring to Kalindee Rail Nirman (Engineers) Ltd, an engineering company acquired in late 2013, and MCF.
What lies ahead for MCF?
Mallya remains my partner with a 22% stake in the firm, and only with his agreement the future course will be determined. But clearly this firm is going to be run by professionals with no interference from Zuari. It has a strong management team…a few key officials may retire soon. Its main problem lately has been availability of working capital. As Zuari takes majority control in Mangalore Chemicals, I expect banks to start lending to it again.
As far as Mallya is concerned, it is for him to decide whether he wants to remain invested or exit. The agreement with him didn’t envisage his exit either in the same manner as it didn’t see us taking majority control of the company.
Why is MCF a prize catch for Zuari?
The two companies have similar product lines produced by facilities of similar vintage. So, the coming together of Zuari and Mangalore Chemicals will enable us to realize the benefits of scale in sourcing raw materials and streamline our marketing initiatives.
It will also strengthen our control over markets in the southern and western states, the plants of the two companies being located close by. In addition, what Mangalore Chemicals brings to the table is its access to the Mangalore port, which is a better facility than ones in Goa. Mangalore Chemicals’ factory is located opposite the port and has enough space for expansion.
Are you planning to invest substantially in MCF immediately?
The company’s operations will surely be expanded, but I do not know yet what kind of money will have to be invested. We will be investing in our other facilities as well—in Paradip, Goa and so on—but we will put money behind Mangalore Chemicals to ramp up production and make it more efficient. To start with, we will help it secure funding from banks to improve capacity utilization.
Since when did you start eyeing MCF?
I have been interested in it for the past four-five years. When I asked Mallya many years ago what he planned to do with Mangalore Chemicals, he told me that if he ever wished to sell it, he would offer his shares first to me. Two years ago, when a large stake seized by lenders from the UB Group was put on the block, I asked him if he wanted me to buy the shares. I was travelling and rang him from Paris. Within two hours, Mallya got back to me saying he didn’t have a problem if I bought the shares.
Kalindee wasn’t as difficult as MCF, was it?
We knew for long that the founders of Kalindee (the Sharma family) wouldn’t be able to run the company for too long. So it was only a matter of time before they offered their shares in it. A friend introduced me to R.D. Sharma (erstwhile chairman and founder) and we met at our home in Kolkata. We concluded our discussion within two hours. He named a price and I readily agreed to pay it without looking into the books or its facilities.
Kalindee has been a game changer for Texmaco. Wagon manufacturing is increasingly becoming unviable because of unrealistic prices. There’s so much capacity in India and so little demand from the railways that we are making losses on every wagon. Kalindee, on the other hand, provides services: it lays tracks, installs signalling apparatus and so on. Kalindee has an order book of ₹ 1,600 crore to be executed over four years; another order worth ₹ 1,700 crore is expected to be released soon. It won’t be long before the services wing of the restructured Texmaco starts to generate more revenues than its core business of wagon manufacturing.