Electrotherm to demerge electric vehicles division

November 21st, 2008 - 5:59 pm ICT by IANS  

KPMGAhmedabad, Nov 21 (IANS) Electrotherm India, a Rs.133-billion steel and engineering firm that sells electric bikes under the brand name Yo Bykes, is demerging its electric vehicle division from the engineering division. The company’s board, which took the decision Thursday, will commission business consultancy KPMG to determine the valuation for share entitlement and issue ratio while drawing up the restructuring proposal.

“The final decision on the scheme and share entitlement ratio would be taken later,” Navin Nakra, chief financial officer of the city-based company told IANS.

KPMG was selected as “it is the best in this line of business”, Nakra said, adding that the restructuring may not be completed this fiscal. “It is a detailed task and can take eight to nine months before the final restructuring scheme is worked out.”

Nakra said the board decided upon the demerger as having three divisions under one umbrella was not proving conducive to the company’s growth.

The steel and engineering divisions are growing and have bright prospects, but the electric vehicles division was retarding overall growth, Nakra said.

The demerger is expected to attract investments and pave the way for partnerships. “There are investors who are willing to invest in the steel and engineering businesses. But having three different lines of businesses operating under one umbrella is making them hesitant. The demerger will provide the clarity they are looking for,” Nakra said.

Electrotherm is also keen on leveraging its engineering knowhow and expertise in power electronics for backward integration so as to have a presence across the value chain in related businesses.

Alongside, the company wants to consolidate its position as a leading supplier of metallurgical equipment in global markets. A demerger will facilitate both plans, Nakra added.

Additionally, according to him, a demerger will create opportunities for more efficient management of the divisions through separate management teams.

“There was an overwhelming view among the shareholders of each segment that hiving off the electrical division would go a long way in unlocking the true value of the company. It will give a realistic market capitalisation picture, which is vital for fuelling growth of the various divisions,” Nakra said.

The company has production units in Palodia on the outskirts of Ahmedabad and Samakhiyali in Kutch district. Its engineering capital and projects division, the oldest among the three divisions, manufactures induction furnace and other capital equipment used by steel and foundry units.

It also produces structural steel and ductile iron pipes. The special steel division in Kutch manufactures TMT bars, construction steel and stainless steel. The combined annual production capacity is 186,000 tonnes.

In 2006, Electrotherm made a foray into electric vehicles with the launch of battery-operated bikes and had planned to develop electric three- and four-wheelers as well as hybrid electric low-floor buses.

The company now has plans to enter the power generation business, generating electricity from solar energy, apart from manufacturing transformers.

The promoters hold a 29 percent stake, with financial institutions holding 14 percent, foreign and Indian corporate bodies 31 percent, and the public 26 percent.

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