Tube Investments sees CG Power hitting revenue of Rs 5k crore in five years

Tube Investments of India (TII) believes that over a period of five years, it will be able to turnaround CG Power and Industrial Solutions — a company they are in the process of acquiring — to a Rs 5,000 crore top-line earning one with Rs 500 crore profit before tax (PBT).

TII, a Rs 38,000- crore Murugappa group company, also sees CG Power becoming debt-free at the end of the five years. In FY20, CG Power had posted a revenue of Rs 3,169 crore with net loss of Rs 1,799 crore.

The motors business will end up being almost half of the expected turnover of Rs 5,000, while railways and switch gears will be in the range of around Rs 1,000 crore each, and the transformers business might be smaller at Rs 500 crore. Other businesses will help get an additional Rs 500 crore, TII top management told analysts in a recent call.

CG Power’s standalone revenue was at Rs 5,620 crore in FY19, which dropped to Rs 3,169 crore in FY20 due to the lack of working capital. The number will continue to contract into the FY21 as well, the TII management said. “So that will hit a bottom in’20-21 and then we believe that we can resolute that number from ’21-22 onwards,” they said

The Competition Commission of India (CCI) had approved TII’s proposed acquisition of shares in CG Power on October 13. TII had signed a share purchase agreement with CG Power to acquire around 57% stake for investment of `800 crore.

CG Power is among world’s top 10 transformer manufacturers, second in transformers and switch gears in India, and first in motors manufacture in the country. It caters to over 21 industries and has more than 20 manufacturing units.

It had a domestic debt of Rs 2,161 crore as of March 31, 2020, which has now been restructured as a term loan of Rs 650 crore, a low coupon NCD of Rs 200 crore and a Rs 150 crore balance sheet item which is to be adjusted from the sale of company property. “There is also an agreement with the new lenders coming in that they will fund new SP and NSP limits to support the company’s growth, and finally there is an equity infusion from TII to the order of about Rs 800 crore,” TII officials told analysts.

The officials said the acquisition helps TII de-risk from the auto business, as it continues to be concerned about the cyclicality of that business and its position in it as a tier-2 supplier. CG Power also goes well with TII’s core stability of manufacturing high-quality industrial products, they said.

“That has been our overall approach, that we want to be a leading industrial player in the country, and so this gels well with that approach. Third is that we do believe that companies like CG Power basically fit well culturally with TII. We do believe that our approach of fairly prudent financial management, very strict and high corporate governance standards are something that will benefit CG Power in the long term and therefore is a good complement for what we have today,” they said.