The Hindu Business Line : LGB to sell industrial chain division

Coimbatore, June 25 The city-based automotive component manufacturer L. G. Balakrishnan & Bros Ltd (LGB) is selling its industrial chain unit to Renold plc of UK, a leading industrial chain manufacturer with a group turnover of £159.3 million in 2007.

While the initial consideration payable by Renold will be about Rs 48 crore, the maximum consideration is expected to be around Rs 72 crore and the minimum will be about Rs 55 crore.

The acquisition by Renold is part of its strategy to migrate (its manufacturing process) to low-cost countries as part of its Profit and Cash Enhancement (PACE) programme.

Joint Venture

Speaking to Business Line on Wednesday, Mr B. Vijayakumar, Managing Director, LGB, said after getting the approval of the shareholders for the sale of the industrial chain business, the company would enter into a joint venture agreement with Renold for the industrial chain business that would require an investment of about Rs 4 crore. LGB would hold 25 per cent stake in the JV with Renold.

Explaining the benefits of the sell-off, he said LGB would use the cash flow to substantially reduce its debt. He estimated LGB’s debt to be around Rs 235 crore. The association with an internationally-known brand would help the venture to globalise its reach since any new product to be launched by Renold may come to the joint venture. The proposed venture would also benefit from a better manufacturing system.

Mr Vijayakumar said the current contribution of the industrial chain division, located in Dindigul district in Tamil Nadu, was around Rs 60-70 crore. He expected this turnover to treble in three to four years and LGB, as a stake holder in the venture, would benefit.

The company stated that the alliance with Renold would complement LGB’s objective of providing a whole range of new products from Renold including gear boxes, couplings etc. The association would help the employees acquire new skills in quality manufacturing. The products manufactured in India through the JV would be sold in about 90 countries and Renold and its group companies may also outsource products from the parent company and discussions on this have also been positive, it said.

According to Renold’s Web site , industrial chain contributes 70 per cent of Renold’s sales and the company is No 2 global player (by market share) operating in more than 90 countries. In the National Stock Exchange, LGB shares closed on Wednesday at Rs 16.75 (Rs 13.95 previous close) and 1.61 lakh shares were traded.

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