Nicholas board okays restructuring

MUMBAI, February 20: The board of the Rs 525-crore Nicholas Piramal has decided to spin off its glass and bulk drugs businesses into separat...

MUMBAI, February 20: The board of the Rs 525-crore Nicholas Piramal has decided to spin off its glass and bulk drugs businesses into separate subsidiaries effective April 1, 1998. As a first step, 40 per cent stake of the new glass company, Gujarat Glass Ltd, will be shared between three new partners, while the balance will be held by Nicholas Piramal.

According to Nicholas Piramal chairman Ajay Piramal, Indocean Packaging Ltd (a fund set up by Chase Capital Partners and the Soros Chatterjee group), the India Private Equity Fund (supported by the Overseas Private Insurance Corporation) and Citicorp Investment Bank (Singapore) Ltd will acquire the 40 per cent stake for Rs 118 crore. Individual holdings of the three partners would be 11 per cent, 24 per cent and 5.4 per cent respectively.

The consideration received could see the Ajay Piramal group launch a major offensive on the acquisition front, both for brands and companies with a strategic fit.

Story continues below this ad

Nicholas Piramal will, however, retain 54 per cent equitywith a further six per cent payable on achievement of certain performance criteria by April 1, 1999. This six per cent equity is held in the form of warrants and can be exercised at par.

Piramal said the spinoff of the glass unit was being done since it was capital-intensive and a standalone company would provide more focussed attention and increased growth prospects in Australia and south-east Asia.

On the bulk drugs and fine chemicals business, Nicholas Piramal CEO Francis Pinto said a MoU had been signed with a major European chemicals company, La Porte, to manufacture speciality chemicals with equity partnership. Nicholas Piramal is also working on a second alliance for an entry into the US market, which will involve an equity tie-up. The proposed partners are expected to hold a majority stake in the new bulk drugs firm, christened Global Bulk Drugs and Chemicals.

The domestic bulk drugs industry is facing problems of overcapacity, price downturn and dumping from China, and a shakeout is imminent,Pinto said. Moreover, proprietory technology is not easily accessible unless it involves an equity participation for the overseas partner. As independentsubsidiaries, an equity stake in these divisions is now made possible, he said.

Story continues below this ad

Nicholas Piramal, which had acquired Hyderabad-based Sumitra Pharmaceuticals’ bulk drugs business in October 1995, recently decided to cut back production to minimise losses. The bulk drugs business accounts for approximately 10 per cent of its revenues.

Pinto added that the benefits of earlier acquisitions and joint ventures were visible with Boehringer Mannheim expected to generate a profit after tax of Rs 10 crore in 1999, while the joint venture with Ambalal Sarabhai would register a profit-after tax of about Rs 2.5 crore. The OTC venture with Reckitt & Colman is likely to generate a turnover of Rs 250 crore in 1999 with dividends accruing to about Rs 3.6 crore.