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HFCL set to take over Arihant Optics

S. Muralidhar

Partha Ghosh

NEW DELHI, July 10

IN a move that is likely to give a major fillip to its core business of optic fibre cable manufacturing, Himachal Futuristic Communications Ltd (HFCL) is all set to takeover management control of the Hyderabad-based fibre manufacturer, Arihant Optics Ltd , in an all-cash deal.

On completion of the deal, the Arihant Optics unit will become the first fibre manufacturing facility under the HFCL group. The company currently imports fibre for its cable manufacturing operations.

Senior officials at HFCL and sources closely associated with the deal confirmed that the negotiations between the two parties are at an advanced stage and an announcement regarding the buy-out is likely to be made later this month.

The HFCL Managing Director, Mr. Mahendra Nahata, declined to comment on the issue. He, however, did not deny the move either.

Under the proposed agreement, HFCL is expected to pay around Rs. 5 crores for buying equity from the promoters of Arihant Optics. HFCL is also likely to pay approximately Rs. 6 crores for the assets of Arihant Optics. The four-year-old Hyderabad-based co mpany has an optic fibre manufacturing plant with a capacity of 600 metres per minute (mpm), which works out to approximately 1.5 lakh km per annum (kpa), sources said.

They added that the proposed deal will also include the taking over of term loans outstanding and unpaid by Arihant Optics to Industrial Development Bank of India (IDBI). The company owes about Rs. 9 crores to IDBI. After the takeover, this loan will be serviced by HFCL.

Post-takeover, while HFCL is initially planning to continue maintaining Arihant Optics as a separate entity; eventually, the latter company is likely to be merged with the former. HFCL is also planning to pump in fresh funds into Arihant Optics to double the production capacity from the present 1.5 lakh kpa to three lakh kpa, the sources added.

The move is significant since HFCL, one of the major producers of optic fibre cables, imports fibre. Once Arihant becomes an HFCL subsidiary, most of the fibre manufactured by it will be used internally, giving HFCL a distinct price advantage in the mark et.

Company officials pointed out that ``the buy-out is primarily aimed at gaining an advantage vis-a-vis backward integration with the existing optical cable fibre manufacturing business.'' HFCL has an optic fibre cable (OFC) manufacturing unit in Goa set u p with an investment of $10 million (approx. Rs. 40 crores).

The proposed takeover is expected to offer new synergies to HFCL, since the OFC business is driven by low margins and high volumes. HFCL's plans for doubling the optic fibre capacity of Arihant Optics, post-takeover, is also with the objective of achievi ng economies of scale.With the further opening up of the telecom sector, including the National Long-Distance Telephony (NLD), a boom in OFC sales is expected during the next two to three years. Currently, one of the largest suppliers of OFCs in the coun try, Sterlite Industries, is also one of the leading manufacturers of fibre, giving it a distinct price advantage in the market. HFCL officials said that the takeover of Arihant will help the company take on domestic competition.