Textile biz demerger to help Forbes Gokak finance expansion
Forbes Gokak’s business restructuring plan seems to have fallen short of market expectations. The share price had risen from Rs 430 on November 3, when it had announced the restructuring, to Rs 630 on November 27.
By Ravi Ananthanarayanan & Amit Bhandari, TNN |
Forbes Gokak’s business restructuring plan seems to have fallen short of market expectations. The share price had risen from Rs 430 on November 3, when it had announced the restructuring, to Rs 630 on November 27.
The share now trades at Rs 560, a week after the plan was announced. It seems the market was expecting it to split most of the key businesses into separately listed subsidiaries, whereas the company has unveiled a plan to demerge only the textile business.
Forbes Gokak seems to be taking one step at a time, evaluating how its first attempt at restructuring will shape up. Moreover, the company’s intention seems to be more to secure investments required for its key businesses, rather than to unlock market value as some other companies have done.
In its 2006 annual report, the need for investing in its textile, logistics and engineering businesses is mentioned, for which a restructuring could be necessary. On a consolidated basis, Forbes Gokak gets about 45% of its Rs 1,400 crore turnover from consumer appliances (Eureka Forbes), 23% from textiles, about 10% from online lottery, 5% from engineering and others like logistics and office automation make up the rest.
In terms of profitability, the textiles division has the lowest margin with 3.7%, consumer appliances is slightly better at 5.8%, and engineering is the best performer with a 14.9% margin. Both lotteries and ‘others’ are making losses.
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Forbes is investing in capacity to expand the textiles business. Further investments are being made to make more value-added products, and also set up capacity to make knit fabric to garment makers. The demerger will enable it to fund these investments, and even raise equity from investors who would be more comfortable investing in a standalone business. Investors, of course, would have been hoping that the consumer appliances business — with some top-notch brands — gets listed. They have a long wait ahead.
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