Not in talks with ITC to sell cigarette biz: RDB Industries

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ITC is in advanced stages of talks to buy Indian cigarette maker RDB Industries. The FMCG major is looking to buy RDB's cigarette business for Rs 350 crore. This is the second attempt by ITC to buy a loss making division of RDB.

In 2007, ITC had proposed to buy RDB's plants and brands for Rs 250 crore. That offer was rejected by RDB's management.

RDB has a plant capacity of over 20 billion cigarettes per annum. It demerged its cigarette division in April of 2010.

Earlier, the company was also in talks to sell its cigarette division to Japan Tobacco Inc (JTI). A Mumbai-based investment banker was given the mandate and JTI had carried out due diligence for the factory. According to him, JTI however had kept the RDB deal on hold as its infusion of Rs 293 crore in its Indian joint venture, which it did without increasing its equity stake and bypassing the Foreign Investment Promotion Board (FIPB) had met with controversy.

In the fourth quarter of financial year 2010, the company posted revenues of Rs. 20.35 crore as compared to Rs.19.67crore YoY. It reported net profit of Rs 22.49 lakh versus a loss of Rs.24 lakh in quarter four of FY09.

In an interview with CNBC-TV18, MP Singh, Director, RDB Industries spoke on the development.

Below is a verbatim transcript. Also watch the accompanying video.

Q: Can you take us through what this Rs 350 crore means for RDB Industries? Why have you put this unit up for sale?

A: We are amazed that this kind of rumour has been floating in the marketplace for a while. It is to deny that we have put this unit on sale. In fact we went through a restructuring process. Just because we have a managing director in the name of Mr. Fernandes who has had a stint at ITC, people have drawn their own conclusions and gone ahead with these kind of rumours.

Q: Why was it demerged in the first place? What plans do you have if not to sell it?

A: I think I have gone on record saying that we would focus more on our realty and infrastructure company. So the company that is in this business is RDB Realty & Infrastructure Ltd, which is a real estate company and that has contributed to the entire revenue stream in the past.

And RDB Industries now is going to focus on the tobacco business. With all the restrictions that have come into play now, we are going to create a market for ourselves so that we can do justice to our tobacco division, which is a large property, we have a large capacity that is underutilized. So those things are happening.

Q: So there is no plan at all to sell it? Let the ITC news not be true but no plans at all to sell the cigarette business?

A: We have been trying to have six potential collaborators in the past. But that quest has been watered down by the government's announcement recently that there is no way we can probably allow any foreign direct investment in the tobacco business.

So yes, absolutely there is no plan for us to get out of this business because this business has to expand. We are having a capex plan, we are having a board meeting some time next month, on the 18th to be more precise to discuss the capex plan being put forth for the expansion of additional capacities that have been unutilized. So we are on with our own plans and programmes.

Q: What are the financials of the cigarette business right now?

A: We have been hardly about 10-12% of the entire revenue of RDB Industries, which has been in the region of about more than Rs 100 crore. But the tobacco division has been hardly about Rs 10-12 crore so far. So we want this to be separate now and we want to have a definable market share. We want to have something which is absolutely more visible in the marketplace.

Q: What are your plans to scale up the cigarette business and how exactly do you think you are going to fund this?

A: Our capacity is about 10-12% utilized. So we in the first phase in a couple of years from now would like the capacity utilization to rise to about 20-22% for which we do have machineries. Space is not a problem as we have got a huge space in Kolkata.

To finalize the capex plan being put up by the new managing director on September 8, we will review what can be done, what additional machinery we require. Funding is not a problem because we do not have any financial problems.

We have been a cash rich company right from the very beginning and by itself we are underleveraged. We can leverage ourselves to get our required funds which may not be very large. It maybe just well under Rs 5 crore or so. So that is not a big thing for us at all.