Tube Investments of India (TII), part of over Rs 38,000-crore Murugappa group has said that bringing the recently-acquired CG Power and Industrial Solutions back on track is the company’s priority, as it believes there is a fair amount of value creation opportunity for it, by improving profitability of the latter.
Vellayan Subbiah, MD of TII, told shareholders, in the Annual Report 2021, that reducing CG Power’s debt vulnerabilities will continue to be an important metric for TII.
“We strongly believe, our line of prudent financial management, coupled with strong and transparent corporate governance standards will benefit CG Power in the long-term,” he said.
TII, one of leading manufacturers of a wide range of precision engineered and metal formed products for major industries such as automotive, railway, construction, mining and agriculture, had acquired controlling interest in CG Power in November last year.
CG Power has 18 manufacturing facilities that employ over 11,000 persons directly and indirectly. With both the companies being engaged in the engineering business, the acquisition, it was further expected, would bring in synergy for both of them.
Subbiah said the rationale behind the acquisition was not only to drive inorganic growth but also to de-risk TII from the auto business and its cyclicality.
“This is in alignment with our core strategy to be a leading industrial player in the country. TII’s core stability of manufacturing high quality industrial products will be further strengthened with CG Power’s portfolio of differentiated products, addressing new and varied market segments,” he said.
CG Power comes with an 82-year old legacy, with three business verticals, such as power comprising primarily of transformers and switch gears, industrials comprising motors, pumps and commercial products and the railway segment. Globally, the company is positioned among the top 10 transformer manufacturers. It is ranked as the number one motors manufacturer and the number two in transformers and switch gears in India.
M A M Arunachalam, chairman, TII, said the acquisition of CG Power, having a strong global presence, was a major step-up in size, scale, and scope for TII, accelerating the company’s forward bound growth strategies.
TII had entered into a securities subscription agreement on August 7, 2020 with the debt-laden CG Power about Rs 700 crore. The company, in early September, decided to make a further investment of Rs 100 crore and currently holds an aggregate shareholding of 58.58% in CG Power on a fully diluted basis.
Towards easing of the fund constraints of CG Power, the company furnished guarantees in favour of the lenders of CG Power for an aggregate amount of up to Rs 1,365 crore. CG Power is well on course to improve its financial and operational performance so as to service and satisfy fully all its debts by itself without any need for the lenders of CG Power to seek recourse to the guarantees furnished by the company, TII said.
According to reports, CG Power had a domestic debt of Rs 2,161 crore as of March 31, 2020, which has now been restructured as a term loan of Rs 650 crore, a low coupon NCD of Rs 200 crore and a Rs 150 crore balance sheet item which is to be adjusted from the sale of company property.