Mumbai, July 4: Unable to cope with mounting losses, the Stanrose Mafatlal group company, Standard Industries, has sold its textile plant at Dewas, Madhya Pradesh, to the Kasliwal-owned S Kumars.

The deal, which will bring Rs 17.4 crore to the coffers of the funds-starved Standard Industries, was signed last week. It will also pave the way for S Kumars' backward integration. The latter's textile business is largely centred around Dewas.

Standard Industries will use this money for modernisation of its textile business which has been passing through a rough patch for a year. "The Rs 20-crore modernisation plan has already been prepared and the money from the sale will be entirely used for this purpose," company officals said.

The sale was delayed by a few months owing to a delay in the final clearance from the Unit Trust of India. Observers say the consideration of Rs 18 crore is marginally higher than market valuations.

Standard Industries is focusing on textiles after implementing a Rs 95 crore expansion plan for its chemical business last year. As part of the new plan, it has identified the middle east as an important market for textiles.

The modernisation, now under way at its processing house at Prabhadevi in Mumbai, will result in a 15 per cent increase in production capacity.

S Kumars was keen on acquiring the plant as the company was in the midst of an expansion-cum-modernisation drive. It is in the process of hiking spinning capacity while the weaving expansion programme is already through.S Kumars is going ahead with its worsted project along with Scotland-based Reid and Taylor.

It also plans to make a foray into power. The company went through a rough patch last year with the tight liqudity position leading to inventory pile-up. Though turnover increased marginally, net profit was hit due to a squeeze on margins. Dividend was reduced to create a stronger resource base for the expansion programme funds for modernisation

By disposing of its weaving unit at Dewas, Standard Industries will be able to garner funds for its modernisation plans at the Mumbai plant. With more spinning units coming up, prices of looms are getting depressed. Hence, it makes more sense to sell the plant and concentrate on improving the quality of the final product.

However, it remains to be seen if modernisation will help Standard Industries, which recorded a loss of Rs 13.13 crore for the year ended September 1996. S Kumars will gain by way of an immediate increase in its spinning capacity.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.