MUMBAI, February 5: Vijay Mallya group company UB Engineering has finally woken up to the hardships caused by its unsynergistic diversifications into printed circuit boards (PCBs), pagers and liquor.To overcome the problems of flab, the beleagured company under the new managing director DS Shevade has chalked out restructuring plan. For starters, the liquor business has been transferred to other group companies and its electronic business sold to Digisound Electronics GmbH for Rs 3.5 crore.
Shevde intends to concentrate on core business of engineering and construction services in sectors like power, oil and gas, desalination plants, fertilisers, cement and steel, among others. The company has been experiencing major receivables problem. It has created an exclusive cell for debtors' realisation and retrieval of expired bank guarantee from clients. It has also set up another cell for settlement of claims like cost-overruns, extra work and so on.
With this, the company expects to improve its deterioratedcash flow situation as last year the company had faced problems like devolvement of letters of credit (LCs) issued by the company and bankers refusing to allow the company to pay dividend to its shareholders.
Now, the company has committed to remedy the situation through several measures including regionalisation of accounts departments/systems and centralised collection of funds received from the clients on projects; frequent techno-commercial audits of sites/projects and strict implementation of audit cell's recommendation and reduction in overheads, among such others. The company is restructuring its debt and considering external commercial borrowing (ECB) to reduce the interest burden. Though last year the company had reeled under heavy borrowing, over the last six months it has made substantial repayment to the consortium banks.
As a business strategy, the company now contemplates selective marketing and will depend less on small-size, long-duration projects and focus on high-value projects likeindependent power projects (IPPs), refineries, steel plants and so on. It will also attempt to achieve an erection procurement and commissioning (EPC) contractor status.
However, the current economic situation does not augur well with the company's renewed efforts to regain strength. As the infrastructure sector has been experiencing a slowdown, the company does not expect much growth in its turnover, which is expected to be about Rs 200 crore for 1997-98. The company has a Rs 240-crore order book position and expects to augment it further. Despite the slowdown in the industry, the company is upbeat about its outlook. DS Shevde says, "UB Engineering, being a leading electro-mechanical construction company, is bound to have a major share in the forthcoming IPPs, infrastructural and industrial projects once they materialise. These projects, though currently delayed, will definitely come up due to the basic need for industrial and infrastructural growth in the country. Decentralisation of decision-making atthe state level is likely to expedite these projects."
The company reported a 13 per cent rise in sales to Rs 93.09 crore during the first half of the current year, while its net profit improved from Rs 14 lakh to Rs 1.57 crore over the same period. Though the company may not report sales growth for the full year, its bottomline is likely to improve on account of lower interest cost and Rs 3.5 crore received on sale of its electronic division.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
