HLL's margins may improve post deal: Bajaj Electricals

Bajaj Electricals will merge with Hind Lamps Limited's (HLL) manufacturing business and the transaction is likely to close in the next 12 months, says Shekhar Bajaj, Chairman and MD of the company. On HLL's business, he says it has been under Board for Industrial and Financial Reconstruction (BIFR) for the last 10-12 years and is valued at Rs 16 crore today. It has a negative net-worth of Rs 25-30 crore, he adds. With this deal, cost of borrowing for HLL will come down from 13 percent to 10-11 percent, he says, adding that margins too are likely to improve in the coming quarters. Below is the verbatim transcript of Shekhar Bajaj's interview with Ekta Batra and Mangalam Maloo on CNBC-TV18.Ekta: If you could apprise us of how much this entire acquisition or this merger would be worth and what would the synergies on the rationale be behind it?A: The Hind Lamps has been a Board of Industrial and Financial Reconstruction (BIFR) company and it is for the last 10-12 years and therefore under the BIFR scheme we were supposed to turn it around and make it profitable.We have not been able to make Hind Lamps profitable. Therefore we thought that as Bajaj Electricals -- we should not think of looking at a company once at least it shows sign of being profitable. So now, Hind Lamps has stopped losing money but under the BIFR, it is still a sick company. Therefore we found that there is a problem of cash flow there. From 1951, we are depending on them for our supplies of lamps. They are a company where we are sourced of lamps so once we come with the picture and we put in to our finances, with our management skills and all, we should be able to reduce first and make it more profitable and therefore we thought it is a good time. We have to go through our whole process. First we to make an application to BIFR, once the BIFR approves this demerger and merger then once they approve it then they have to go to our shareholders, take their approval. I think it would take around 12 months or so.Mangalam: Could you also give us a sense of what is the kind of debt, which is there on HLL's books and what is the kind of debt that will come on to your books post this?A: I don’t recollect exact numbers but that has been in the valuations. Minus that, from the valuation that they have done for the asset and therefore on the basis of that, we have given a value where the total amount that the shares of Bajaj Electricals that will be given to the shareholders of Hind Lamps, the total value of that on today\\'s market price is around Rs 16 crore.Ekta: If I am looking at the HLL turnover, which you have indicated in the press release itself, 2012-2013 it stood at Rs 77 crore, 2013-2014 it stood at Rs 72 crore and 2014-2015 it came down to Rs 65 crore and any which way it has been loss-making for the past 10-12 years. What makes you confident that this is a reasonable business to take on and for you to turn it around and get it out of BIFR?A: We see very clearly that this is a good source of lamps for us. We have been buying since last 65 years, the lamps from them. However, for the last few months they have stopped losing money, they are just breaking even. So we said now is the time that if we put in some funds and support them and once it is controlled by Bajaj Electricals, the suppliers also look at it differently, the debt that you take -- today debt you are buying, you are getting at 13 percent interest but if we come into the picture, the debt would be 10-11 percent. As far as vendours are concerned because they are not getting paid on time, they charge extra price. Once we get the control of the same then we hope that at least 3-5 percent cost reduction would take place and to that extent, the profitability is much better.Ekta: What about Bajaj Electricals as a whole on a consolidated basis, do you think that this is going to pressure your margins as well as bottomline?A: It will improve because once it becomes part of Bajaj Electricals then till the GST doesn’t come, at least next two years at least one and a half years till GST doesn’t stabilise, when we are buying from them we pay 2 percent GST, once it becomes part of Bajaj Electricals, no GST will be applicable. So that 2 percent is the additional margin available.Also the interest and all which we are paying on loans now will be gone because all that will be paid up. So to that extent, it becomes a much more clean company and it becomes worthwhile for us. Now it all depends on BIFR. How they look at it because BIFR has been positive otherwise this company is not a viable company as per them and therefore they are saying that how do you make it viable.Ekta: What is the latest loss figure?A: I don’t remember exact numbers -- maybe Rs 25-30 crore is a carry forward loss from -- networth negative will be about Rs 25-30 crore.Mangalam: Do you expect it to become profitable in H2FY16?A: H2 it would be profitable but standalone it will be profitable and it has become much better once the approval comes from BIFR then the whole picture changes -- even now it will be profitable that is why the board considered. This could have been done two years back also but that time it was still losing Rs 3-5 crore which doesn’t make any sense because it is still losing money. Now that we have given that the BIFR and reduced overrates and other things, now we are finding that it is not anymore losing money so they have started making cash profits which is okay now this is a good time to look at this.