MUMBAI, February 7: Kirloskar Oil Engines Ltd (KOEL), the Kirloskar group's flagship company, has generated a whopping Rs 180.2 crore through other income compared to its sales turnover of Rs 306 crore in the first half ended September 1997. The Rs 2,400 crore Kirloskar group which went on a diversification spree into unrelated areas has been bailed out by disposing of its investment in group companies.During the half year (September 1997), KOEL has made a net profit of Rs 140.86 crore. This is part of the restructuring currently undertaken by the Rs 2,400 crore Kirloskar group which has been witnessing intense competition after the opening of the market and liquidity crunch. Other income has come from the profit on the sale of investments, but the company did not divulge details about the investments sold during the period. The company had earlier sold KOEL Investments which controlled the group holding in some other companies. Repeated attempts to contact top company officials for clarifying certainpoints did not elicit any response.
Part of the proceeds will be used to repay some of the high cost loans to Industrial Development Bank of India (IDBI). The company's total borrowing is about Rs 314 crore. According to sources, part of the other income will be used to invest in the preference issue of Kirloskar Ferrous Metals. The performance of the company has been affected by the advances made to group companies -- its total loans and advances are Rs 174.38 crore.
It may be recalled that the company had sold part of its 25 per cent stake in Kirloskar Cummins Ltd to the American partner, Cummins for Rs 66 crore during 1996-97 and declared the parting of ways. While the Kirloskars have declared their intention to get out of unrelated business and concentrate only on core areas, the group has been facing severe liquidity crunch and high interest cost burden due to heavy borrowings to finance some of the projects. The company's liquidity crisis was precipitated by the shareholders unwillingness to doleout money to convert the warrants issued as part of the rights issue in 1992.
The company's interest burden has increased from Rs 35.61 crore in 1995-96 to Rs 54.71 crore in 1996-97. During the first half of 1997-98, it incurred an interest burden of Rs 30.52 crore. ``The high interest and provision for taxes would have pushed the company into the red had it not been for the substantial increase in other income which has gone up from Rs 10.73 crore to Rs 180 crore. The company's diversification has not helped the Kirloskar group to generate a corresponding rise in income,'' sources said. KOEL is virtually the holding company of the Kirloskar group which has controlling stake in some other group companies.
One of the leading business houses in the country, the Kirloskar group has been facing tough competition in various segments. The company has been planning to spin off its engine valve business into a joint venture with MWD, a wholly-owned subsidiary of Mahle, Germany.
Discussions have also been goingon with multinationals for selling off the engine bearings business so that the company will focus only on diesel engines. The recession in the auto sector has, however, affected the possibility of an early recovery.
The group was also trying to rope in TNN Glacier of UK and Ansaldo of Italy for manufacturing bearings and power generation and turnkey projects and rail transportation. Shivaji Works Ltd, another company acquired by the Kirloskars, has also been faring poorly and the company has offered a voluntary retirement scheme to employees.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
