Sree Jayajothi Cements sale to help cut debt: Shriram EPC

Shriram EPC is confident of substantial reduction in its debt after it sold its holdings in Sree Jayajothi Cements Ltd (SJCL) for Rs 1,400 crore, says T Shivaraman, MD & CEO of Shriram EPC.

The Chennai-based engineering, procurement, and construction (EPC) sold its stake in SJCL to MyHome Industries Limited (MHIL); a 50:50 joint venture (JV) between CRH Plc in Ireland and My Home Group in Hyderabad. The deal will reduce interest costs in the firm's account books going forward, Shivaraman told CNBC-TV18. The focus will now be on the core EPC business, he adds. Also read: Exports grows by 11.6% to $25.83bn in July Below is the edited transcript of his interview to CNBC-TV18. Q: The calculation is that you will get around 70 percent of Rs 1,400 crore. What are you going to do with that money? A: No, it is not 68 percent of Rs 1,400 crore that we will be getting. There is a substantial bank liability on Jayajothi. It will be taken over by the new investor. The equity and money returned to Shriram EPC would be substantially lower. Q: Can you tell us how much was the debt? How much will accrue to the banks and what is left? A: The debt of the company as of March was Rs 700 crore. Q: So, some Rs 480 crore comes to you? A: North of that; yes. Q: How much of your debt comes down because of this money? Will you be using that to retire some of the debt? A: Yes, the entire money will be used to retire debt. We have been overleveraged because of the Jayajothi situation. This was not a planned investment by Shriram EPC. However, we got into the asset by accident and was a distraction from our core EPC business. The enterprise will do very well as the new buyer My Home Industries is a very strong cement player in Andhra Pradesh. It will also allow us to focus on our core EPC business, which is in good shape. Q: Have you sold in duress? Have you made a loss out of this asset? A: I don’t think we can talk about the exact profit and loss numbers now. We will be having a board meeting in the next couple of weeks. You will see the exact numbers on the profit and loss (P&L) of Shriram EPC in about two weeks. Q: In subsequent months as the cement unit is deducted from your P&L, will you see an impact on your top-line? What might be that impact? A: We were never consolidating with cement unit. Although Shriram EPC itself owns only 19 percent equity in the cement unit, the balance was held through other group companies, so were not consolidating Jayajothi. It was in our books as an associate. We will see the impact on the P&L primarily in terms of reduced interest cost. _PAGEBREAK_ Q: Any more assets that you can sell going forward? A: No, this was the large asset. What is left in Shriram EPC’s books is primarily the contracting business now. There are no assets left. We are now a pure play EPC player. Q: If your debt goes down, how much might your earnings increase? A: Unfortunately, I am very close to an earnings report. Q: Would you say lesson learnt and just stick to the EPC business going forward? A: Yes definitely. We had never intended to get into cement, so in that sense - but then the lesson has been learnt. We are much more careful and have been much more careful in the last 3-4 years in the kind of contracts we take and the kind of exposure we lay ourselves out for; especially to the private sector. About 80 percent of our business now comes from the public sector and the government. So, to that extent, we have been a little more cautious with the private sector clients.