The Hindu Business Line : `BIFR status restricting fresh investments in Jessop'

INCORPORATED in 1788, Jessop & Co Ltd was once India's showpiece company in the engineering sector. Having constructed the first iron bridge of the country in Lucknow during the time of the Nawabs of Oudh and Kolkata's Howrah bridge in the early 1940s, Jessop's creations are still in use all over the country.

It is engaged in making rolling stock for the railways. However, the company was a shadow of its glorious past when the Government disinvested it in August 2003. Excerpts from an interview with Mr Pawan K. Ruia, Chairman:

Jessop was a loss-making BIFR listed organisation when you took over the management in 2003. What is the outlook like for this year?

Jessop was handed over to the Ruia Group on August 29, 2003. We had taken control of the management with 72 per cent stake on September 1, 2003. The company was losing close to Rs 1.5 crore a month.

Though the Centre had decided to disinvest the company in February 2002, one-and-half years were lost before it could be implemented due to court cases filed by a section of employees, which went up to the Supreme Court. In the process the company had lost another Rs 34 crore, an additional liability we had to shoulder beyond the amount initially agreed upon.

The disinvestment took place when the company was under the BIFR with a negative net worth, Rs 122 crore of accumulated losses against a paid-up capital of Rs 95 crore, and with reserves wiped out.

Soon after we had taken over, Jessop registered an operating profit of Rs 1.38 crore and a net profit of Rs 29 lakh in the third quarter of 2003-04.

What made the difference was higher business volumes and efficiency in executing the orders. Between April and September 2003, the company had registered a turnover of merely Rs 13.89 crore.

During October 2003 to March 2004 — under our management — the company registered a sales turnover of Rs 32.45 crore and a net profit of Rs 1.72 crore. During the corresponding period in the previous year (2002-03), Jessop registered a turnover of Rs 19.89 crore and a net loss of Rs 26.23 crore. We had executed the entire order for 36 coaches in this short span.

Talking in terms of operational efficiency and business volume, in the first nine months of this year, net sales have increased by over 60 per cent to Rs 41.3 crore against Rs 24.8 crore in the corresponding period of the previous year. Compared to a net loss of Rs 7.78 crore during April-December 2003, we have booked a net profit of Rs 2.12 crore in 2004.

It is now more than certain that after years Jessop will book a net profit in 2004-05.

What future investment proposals do you have in mind for Jessop?

Being listed under the BIFR, Jessop is now governed by a revival scheme prepared by SBI. Apart from the complexities involved, this is restricting the company from making fresh investments in high growth areas. We are all for setting up a bogie and coupler plant at Durgapur at an investment of a little over Rs 30 crore to utilise fully our wagon production capacities. But as per BIFR guidelines, Jessop cannot do this.

Similarly, we have identified ship repairing and ship breaking as a logical diversification of our activities. We have identified the consumers too. This business can put Jessop on a growth path. But it requires an investment of Rs 200-300 crore in creating dry-dock facilities, which is again not possible as per the existing guidelines.

We can obviously let the Ruia Group companies tap the potential while using Jessop merely as an agency doling out contracts. But that is not what we are striving for. Jessop has the potential to regain its glorious past and we want to make it a Rs 500-crore company in five years.

But does not the sick status give you some benefits? Putting it bluntly, the Ruia Group had acquired the company at a throwaway price of Rs 18.18 crore. It is said that the company has prime real estate which alone is worth a few hundred crores.

The Ruia Group made this acquisition for the brand value of Jessop. We have not been provided with any special benefit post-acquisition. But the acquisition has not come cheap.

First, we had taken an additional liability of Rs 34 crore on account of losses between February 2002 and August 2003. The State Government is owed Rs 40 crore as sales tax loan, the repayment of which will begin in September 2006. These apart, there are hundreds of creditors and court cases. Dum Dum Municipality alone demanded Rs 2 crore as pending tax and other liabilities.

To be precise, if the present management is to strip the company of its assets, they have to shed the 1,500 employees at an approximate cost of Rs 60 crore, taking the total liability to no less than Rs 126 crore.

Compared to this, we have a total of 61 acres of land. The previous management had sold 4.77 acres of land to the Metro Railway for Rs 1.8 crore per acre in 2000. If we take this price as a benchmark, the land value is close to Rs 110 crore. I wish this simple arithmetic will allay fears relating to "asset stripping" and "cheap acquisition."

How and when will you wipe out the accumulated loss and bring the company out of BIFR?

Left to ourselves, we can bring it out of BIFR in one-and-a-half years. Accordingly, we have drawn up two sets of alternatives for the Centre's approval.

First, we proposed a capital restructuring by way of reducing the face value of shares from Rs 10 to Re 1 while not altering the numbers. This will bring down the equity capital from Rs 95 crore to a manageable Rs 9.5 crore without any change in the shareholding pattern. The balance Rs 85.5 crore will be adjusted against the accumulated loss of Rs 122 crore.

If this is approved it will bring down the accumulated loss to Rs 39.5 crore inclusive of an unadjusted capital receipt of Rs 8.5 crore which could then be wiped out through internal accrual and issue of fresh equity shares either on rights basis or public offering.

The proposal, approved by the board of directors and cleared by an extraordinary general meeting, had been sent to the Centre three months back. However, we are yet to receive any response.

This apart, in September 2004 Ruia Group expressed its willingness to buy out the Centre's 27 per cent stake in the company. As per the `put and call' option in the shareholders agreement, the Government may sell its stake to the private promoter after one year of operation. Alternatively, the promoter can demand buying out the Government stake after three years. The Centre has been silent on this count too.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Coal India may import explosives via STC to tackle shortage

HPCL crude handling

Applicability date for revised accounting norms on employee benefits under review

Lawyers may find it tough to get on co boards

Dabur to launch Sikkim unit this year — Baddi plant to be upgraded

Tinna Overseas to supply bitumen modifier to Pakistan, Bahrain

`BIFR status restricting fresh investments in Jessop'

Pennar Ind lenders to get 43 pc equity by debt conversion

RINL set to achieve Rs 7,500-cr turnover