Tube Investments of India (TII) Ltd., which recently received the Competition Commission of India’s (CCI) nod to acquire CG Power and Industrial Solutions, has set a five-year target to make the latter a debt-free firm, said a top TII official.
“We see significant growth drivers such as exports, new product development and service revenues in the existing business,” S. Vellayan, MD, TII, said during an analyst call. “In the five-year time frame, we will also make the company debt-free.”
CG Power had total debt of ₹2,161 crore, out of which TII benefited from a haircut of ₹1,100 crore of original debt as of March 2020. CG Power has a restructured term loan of ₹650 crore, a very low coupon NCD of ₹200 crore, and a ₹150 crore balance sheet item, to be adjusted from sale of company property. On the funding, he said the acquirers were looking at it as an adjustment of debt and equity infusion. Clearly, reducing the company’s debt will continue to be an important metric for the Murugappa Group, the MD said.
“We will be able to get the company to a strong level of performance in a very short period of time,” he said.
“Our broad belief is that over 4-5 years, we should be able to get the company to a ₹5,000 crore topline with ₹500 crore PBT,” Mr. Vellayan said.
According to him, the motors business will end up being almost half of that, while railways and switch gears will be in the range of around ₹1,000 crore each. Transformers business might be about ₹500 crore. Other new businesses might contribute an additional ₹500 crore.
During FY19, the company reported standalone revenue ₹5,620 crore, which dropped to ₹3,169 crore in FY20 and due to the lack of working capital. The number will continue to contract into FY21 as well. Things might improve during FY22, he said.
Asked about the rationale for acquisition, he said TI adopted a three-pronged strategy — organic business, a VC-style approach to medium-term growth and an inorganic approach to acquire companies and turning them around.
The latest buy helps TII to de-risk from the auto business, which is cyclical in nature. Secondly, it went well with TII’s core stability of manufacturing high-quality industrial products, and were quite different from the current line of products, he said.