Moneycontrol
Get App
Last Updated : Aug 21, 2019 05:35 PM IST | Source: Moneycontrol.com

Gautam Thapar's CG Power eyed 'Siemens of India' tag, but finds itself in a hole

The erosion of market value of CG Power has been so steep that its market capitalisation, which stood at over Rs.18,000 crore in April 2011, has fallen to Rs 757 crore.

Viswanath Pilla @viswanath_pilla
Image: Wikimedia Commons/Crompton Greaves
Image: Wikimedia Commons/Crompton Greaves
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

The internal probe at CG Power and Industrial Solutions, which led to the unearthing of accounting fraud and governance lapses, is a pointer to the sorry state of affairs.

The board in a regulatory filing on August 20 said it found that the total liabilities of the company and Avantha Group may have been potentially understated by approximately Rs 1,053.54 crore and Rs 1,608.17 crore, respectively as on March 31, 2018, while that of advances or loans to related and unrelated parties and Avantha may have been potentially understated by Rs 1,990.36 crore and Rs 2,806.63 crore in the same period.

The board said that certain assets of the company were purportedly provided as collateral without due authority and that the company was made a co-borrower or guarantor for enabling ostensibly unrelated third parties to obtain loans without due authorisation.

Close

So, how did the company promoted by industrialist Gautam Thapar that had all the levers to become a company of Siemens' repute, end up in this state?

Road to destruction

The erosion of market value of CG Power has been so steep that its market capitalisation, which stood at over Rs.18,000 crore in April 2011, has fallen to Rs 757 crore.

Many of the problems faced by CG Power and Avantha Group by extension, lay in the debt fueled international acquisitions, inability in adjusting to the changing dynamics of global macroeconomic environment, lack of focus and mismanagement.

Once known as Crompton Greaves, CG Power was a leading company in India in transformers, switch gears, motors, fans, lights and other electrical consumer products. It had a grand vision to become an end-to-end global supplier of power and industrial equipment.

Starting from 2005 till 2010, CG Power went out on an international acquisition spree. It bought Belgium-based Pauwels Group, giving it additional manufacturing facilities for power and distribution transformers. Followed up by a series of other acquisitions of Ganz's transformer and rotating machine facilities in Hungary in 2006; automation businesses in Ireland, US, UK and Spain; power systems and solutions businesses in US and UK; drives and automation in India and Sweden; and some other operations involving services.

The ambition then was to achieve a revenue target of $8 billion by 2015. In the process it was swallowing more than it can chew.

Things have been fine up till FY11, when revenues touched the peak of Rs 10,000 crore and overseas operations contributing half of those revenues. It had 8,700 employees and over 14 manufacturing and design locations in Indian and outside.

Matters began to turn for the worse from FY12 onwards.

"It had to do with a tremendous slowdown in demand for electrical equipment and solutions throughout the developed nations. Moreover, barring a few international facilities, the effects of a demand downturn were exacerbated by a flawed integration strategy in the power systems business," said Thapar.

Thapar said the management took several corrective measures to reverse the slide like investments in modernising plants, rationalisation work force, replacing top management and exploring new markets. But none of it worked to make the company profitable.

The company started taking hard decisions. It started to sell off of its loss making overseas ventures and discontinued a loss making electricity distribution business in Jalgaon, Maharashtra.

Big blow

In 2015, CG Power demerged its cash-rich consumer business, that contributed more than one-fifth of revenues, ostensibly to infuse cash into the B2B business.

However, no funds came into the company from the deal, as Thapar cashed out selling his entire 34.37 percent promoter stake to private equity firms Advent International and Temasek for Rs 2000 crore. That amount was said to be used to repay loans worth $250 million taken at the group level.

The consumer business is now a separate company called Crompton Greaves Consumer Electrical with revenues of Rs 4526.9 crore.

With cash flow business sold off, CG Power is struggling with debt of Rs 2000 crore as of 30 September.

The company hasn't declared its FY19 financials.  But in FY18, CG Power reported a loss of Rs 1164 crore. The revenue from operations stood at Rs 6189 crore. The company has 3,377  employees on its roles as on March 31, 2018.

Thapar said the loss was due to a write-off of Rs 443 crore as exceptional item. The amount was said to be accumulated over the years due to provisions for litigation claims, advances given to subsidiaries, other advances and overdue inventories.

According to shareholding pattern as of June 2019, the promoter Avantha group has zero stake in CG Power. Vistra ITCL India is the largest shareholder with 21.63 percent stake, Yes Bank holds 12.79 percent, HDFC Trustee Company 9.18 percent, Aditya Birla Mutual Fund 8.94 percent, and Bharti (SBM) Holdings 8.30 percent.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Aug 21, 2019 05:17 pm
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant