Mumbai, June 1: ICI India's board will soon take a final decision on a buyout of Hindustan Lever's (HLL) speciality chemicals division in a followup to its parent Imperial Chemical Industries Plc's worldwide purchase of Unilever plc's operations in this sector.

The Indian management is believed to have decided that only extra investment from its parent can finance such a buyout. Institutional sources said the company has approached ICI plc to fund the buyout, since its own funds are currently deployed for growing the paints and explosives businesses in India.ICI has apprised the overseas parent that the speciality chemicals division would not mesh with its current operations perfectly.

Contacted by The Financial Express, ICI India executive director Sekhar Raha said: "We have no comments to offer on the subject". He also did not disclose the possible capital outgo for the company if it buys out the division.

ICI India's top brass was recently in the United Kingdom to discuss the issue with ICI UK's officials. The Indian subsidiary's directors are believed to have conveyed to its parent that it can buy out Hindustan Lever's speciality chemicals division only if it is funded by the UK-based paints and chemicals major.

The company's top management is unsure whether it should incur a major expenditure at the present moment. ICI India, over the last three years, has been restructuring its businesses in India with a view to improving its operational efficiencies.

according to industry observers, the Indian subsidiary's top brass feel that acquiring the division would mean an additional financial burden in an area which is not among its core businesses in the country.

The 51 per cent subsidiary of ICI plc has now approached institutions and shareholders for approval to bring in funds from its parent to finance the possible buyout.

In an increasingly competitive environment where margins in ICI's main area of operations are declining, the company has just completed restructuring its business operations by strengthening its core competence areas and getting out of all unrelated activities.

In these three years, the company has sold its fertiliser unit to the GP Goenka group, and subsequently its subsidiary Terene Fibres to Reliance Industries. It also divested a part of its stake in Nalco Chemicals India in favour of the US-based chemicals major after parent ICI plc decided to get out of the water chemicals business.

At the same time it has invested in a new 20 million litre paints unit in Thane, near Mumbai, as well as other core competence areas. It also has chalked out investment plans in key areas, which include another paints unit in Chandigarh.

According to ICI India's stated strategy, it is now in the process of consolidating its position in the country and has targeted a Rs 2,500 crore turnover by 2005.

In such a situation, HLL's speciality chemicals business is unlikely to become a moneyspinner for ICI. The entire chemicals division of HLL, of which speciality chemicals is only a part, contributed about Rs 40 crore to HLL's turnover in 1996.

Though ICI has a presence in speciality chemicals in India, it is not the Indian subsidiary's key area of operation. The major contributors to ICI's revenues in India are its paints, explosives and pharmaceutical divisions.Though ICI is globally the largest paints company, it has failed to consolidate on its brand equity in its Indian operations, and lags way behind Asian Paints, Goodlass Nerolac and Berger Paints in terms of volume sales.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.