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C.R. Sukumar

Hyderabad , Oct. 25

FOLLOWING the directives of Andhra Pradesh High Court, Lanco Industries Ltd (LIL), the city-based pig iron and slag cement manufacturer, has decided to convene a general meeting of its equity shareholders to seek their consent for the proposed scheme of arrangement with Lanco Kalahasthi Castings Ltd (LKCL) here on November 7.

As per the scheme of arrangement, the existing paid-up share capital of Lanco Industries of Rs 51.91 crore would stand reduced to Rs 12.97 crore by way of cancellation of paid-up share capital to the tune of Rs 7.50 per equity share.

Subsequently, the members of Lanco Kalahasthi would get three shares of LIL for every four shares held by them. LKCL currently has a paid-up share capital of Rs 36 crore.

The merged entity would have an equity base of Rs 39.76 crore with promoters having controlling stake of 57.75 per cent.

While Lanco Industries' pig iron and cement divisions have an installed capacity of 90,000 tonnes per annum each, pig iron division contributes over 80 per cent of the company's turnover.

As against this, Lanco Kalahasthi has single business of manufacturing iron castings and spun iron pipes with an annual capacity of 60,000 tpa.

Operations of Lanco Industries' cement unit were of late suspended and the unit is currently being reengineered for producing a different product mix having potential in South India, a senior LIL official told Business Line. "We have conceived the business of LKCL as a forward integration project for adding value to the pig iron manufactured by LIL. The LKCL unit is located in the same campus as the pig iron unit of LIL. Pig iron is the main raw material for the ductile iron pipes manufactured by LKCL," the official said.

Though Lanco Industries had earlier entered into an agreement for supply of molten iron and pig iron to Lanco Kalahasthi , the businesses of both the companies were adversely affected by falling pig iron prices, increased additional capacity in the industry and competition, and technical and financial problems.

This led both the companies to enter into a strategic alliance with the Kolkata-based Electrosteel Castings for improving technical and financial performance of both the companies.

Following the Government's emphasis on provision of potable drinking water in the regions lacking in proper water supply systems, the business environment for ductile iron pipes has started improving. Keeping this in view, Lanco Kalahasthi and Lanco Industries have undertaken projects for expansion of their installed capacities to one-lakh tpa and 1.5-lakh tpa, respectively.

Stating that the businesses of both the companies were already inter-dependent, the Lanco Industries official said alliance between them was critical to the success of the proposed expansion projects and requires the two companies to work together closely than before.

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