The Hindu Business Line : `Engineering is on a stronger growth path than sugar'

The Chairman and Managing Director, Mr Dhruv Sawhney, says that their engineering segment is on a stronger growth path than sugar. He says that this demerger will unlock value.

He further says that the sugar sales volumes will increase from 3,80,000 tonnes to 6,00,000 tonnes next year.

Excerpts from CNBC-TV18's exclusive interview with Mr Sawhney:

What is the plan now? How many entities does this get spilt into, and will they all indeed be listed?

Our consultants and legal council is coming up with the scheme of a demerger, where the turbine and gear businesses would be in a separate entity. The details of this are still awaited. Till we have final picture of how it will happen and what it's going to be, it is difficult for me to comment. But we have given them the mandate to go ahead and prepare some detailed schemes.

If one looks at the engineering space today, even though the market is very erratic, orders and margins are at record highs. They are 50-70 per cent higher than what they were last year. So we have tremendous amount of value unlocking in the `engineer-to-order' with service sector, where we are right now.

How have you valued both the businesses; engineering and sugar, and in turn what sort of revenue targets would you set out for both arms now?

For the engineering business, our orders in hand today are 80% higher than the total turnover for the last year, and margins are at about 50 per cent higher than what they were in 2005-06. So we are sitting on orders all the way up to May 2007, and this is both in turbines and in gears.

So in a space now, where one is manufacturing probably as many turbines as the largest two - three manufacturers globally, one has a very big boost in all parts of the economy as far as orders are coming in.

There maybe some temporary things in stock exchanges as far as metals or commodities are concerned. But I think the manufacturing growth rates are what they are forecasted to be for the current year, and we are seeing that with orders. We are seeing that with orders in April and May, and there is no reason that orders for the balance part of the year will be any less.

What kind of order book are you sitting on at the moment?

If I just look at orders for product without sales, spares and service; we ended last year on turbines alone with Rs 280 crore. Our orders today are Rs 510 crore, and we have doubled our capacity. So one is really looking at an order book, which is 85 per cent more than the turnover of last year. We are getting to global levels now, to be dispatching 100 turbines from 1 to 12 megawatt.

There is probably one other manufacturer globally, who will be doing so much. The whole export market is very competitive for companies, which have engineering skills and service elements. This is where China, Europe and Japan are finding great difficulty competing with India.

What sort of growth are you expecting from the sugar division? Have you worked out a ratio for your shareholders when you demerged both these entities?

We are expecting to move our sugar division from 380,000 tonnes to 600,000 tonnes in 2006-07. So it is over a 25 per cent growth in volume terms, and it will be more in terms of revenue because price realisation will be higher in the current year. Our consultants and legal councils must give the details of what would happen to the board. Before they consider that even I do not know that by myself. The idea in all these things is to unlock value and to provide greater value to the shareholders.

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