The new subsidiary of alloy steel business would focus on enlarging the business and making it global, said Rajesh Shah, Co-Chairman & MD, Mukand Ltd.
Rajesh Shah, Co-Chairman & MD, Mukand Ltd in an interview to CNBC-TV18 spoke about the company’s decision to transfer its alloy steel business into a subsidiary.
The new subsidiary was created so that there would be greater focus on alloy steel business, while the stainless steel and engineering business would remain with the main company, said Shah. It would be 99 percent owned subsidiary of Mukand Limited.
However, in future they would surely look at listing the company but as of now they have not yet made those plans, he added.
The company would currently focus on enlarging the business and make it a global business.
He also clarified that the Rs 1590 crore transfer price was based on various assets and there was no opposition from shareholders for this transfer.
Below is the transcript of Rajesh Shah's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: If you could first tell us that is this a new subsidiary or an existing subsidiary and the reason for transferring this business?
A: This is a new subsidiary. The decision was taken by our board in December and we had also informed the stock exchanges at that time. Now the whole thing has been done.
This is done for the purpose of creating greater focus on our alloy steel business because we have stainless steel business and engineering business which will stay with the main company. This is a 99 percent owned subsidiary of Mukand Ltd.
Anuj: Do you have plans to list this company separately as well at some point?
A: We haven’t yet made those plans, we are considering also looking at a possible partner over the next one-two years. We have not made up our minds on any of those things and we wish to take this further and see if this could enlarge the business, take it to a global level and to be able to expand it and to be able to sell our parts all over the world. So this is another idea.
Ekta: How was this valuation of Rs 1,590 crore arrived at?
A: This has been arrived at by looking at different valuations so this is done in a proper way as to see what level of the assets because we are transferring the assets into another subsidiary.
Ekta: When you talk about these assets for example, special and alloy steel business, can you explain to us what these assets are, what would be transferred and what this current segment is generating in terms of revenues, EBITDAs as well as bottomline?
A: As far as the assets are concerned, this is our alloy steel making assets in Hospet, which is in Karnataka. Total revenues of around Rs 2,500 crore would be the business level as far as the topline is concerned.
Anuj: That is practically all the revenues of the company, right?
A: Not practically, it will be about 75 percent or so.
Anuj: What is left in the parent company in that case?
A: In parent company we would have our stainless steel business and our engineering business.
Anuj: Then in that case why is that division being transferred which generates 80-85 percent of the revenues and what do shareholders gain out of that?
A: Shareholders would gain if we are unlocking value which was previously not being seen by them, as well as we are seeing in this a future in which we would be able to expand the business and to be able to look at going out more internationally as well.
Ekta: When you talk about expanding the business and maybe unlocking value, you did allude to your partner as well, tell us what the plans are once you transfer the business to a subsidiary, when you talk about a partner are you planning to sell how much stake if that is the plan?
A: We are only having discussions, this will be something to look at in the future but it would be something done in the best interest obviously of the company and all the shareholders.
Anuj: The reason is that because the company was making losses for last three years and this year the prospects have started to look better. So if you could tell us what kind of numbers do you think on bottomline the division could report?
A: I think that we will see now every quarter we have done it so we will see how it projects. I feel that the January-February-March quarter has been poorly affected to an extent by the huge imports of steel coming in from China and Russia and Ukraine this is a huge surge that has taken place in steel imports and this is affecting not only Mukand but it will affect all steel companies in India. It is a big danger for the steel companies. But otherwise I think our trend should continue and we hope that the automotive industry, which is our main customer does pick up especially in this coming quarter.
Anuj: Rs 1,590 crore transfer price for revenues of over Rs 2,500 crore or close to Rs 2,500 crore has there been any reservation from the shareholders, do you expect something from the minority shareholders?
A: I don’t think so because it has been done very fairly in a very open manner. So if anybody has any question, I am sure they would be able to raise it with the company and we should be in a position to explain in an extremely open and informed manner.
Ekta: Can you tell us what the Rs 1,590 crore valuation comprised of?
A: It is an asset so they have looked at it in totality. On that basis, they have arrived at a figure.
Ekta: What is the balance sheet of a company like at this point, the total debt on books as of now and cash?
A: Of Mukand Ltd?
Ekta: Yes and is there any transfer of debt as well?
A: Yes there would be some transfer of debt that would go along with this company but the valuation -- all that I think would be informed in a proper manner as well but the valuation is what we have to inform so that is what we have done.
Anuj: Do you have the exact number -- that current debt that you have on the books of Mukand?
A: A little over Rs 2,000 crore is the debt on Mukand Ltd.
Anuj: Because Rs 2,000 crore of debt would make it the enterprise value at somewhere around Rs 2,500 crore and so - 80 percent of that business being transferred at this price may not be making arithmetic sense?
A: I don’t think we would be doing that if it didn’t make sense but it is based on the valuation that we have got and that is what we have put in over here.