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Balaji group hopes brewery project will boost fortunes

M. Ramesh

CHENNAI, Aug. 9

GOOD news has been very scarce for the Chennai-based Balaji group in the last five years, ever since its founder, Mr Magunta Subbarami Reddy, was murdered by Naxalites in December 1995. Various businesses of the group fell into the red, often due to circ umstances beyond the group's control.

Last year, Balaji Industrial Corporation reported a net loss of Rs 55.39 crore, Balaji Distilleries made a net loss of Rs 69.25 crore and Balaji Hotels and Enterprises made a net loss of Rs 3.45 crore. Balaji Biotech, which had put up a Rs 85-crore aquac ulture project, went into the hands of the Board for Industrial and Financial Reconstruction (BIFR).

No wonder therefore that the group should feel happy at the prospect of its brewery project, stuck for four years, showing some signs of taking off.

Some in the group hope that the brewery project's take-off may lead the group out of the red.

Balaji Distilleries Ltd began work on the brewery project sometime in 1997. It had proposed to manufacture beer and market it under the popular Kingfisher brand, under a tie-up with the UB group (the owner of the brand).

However, problems arose in getting the necessary clearances. Consequent to this, some of the lenders showed some reticence in lending to the project, pending clearances, which resulted only in the project cost going up further. Today, the cost of the pro ject has increased to around Rs 120 crore, as against the original cost of Rs 85 crore.

The good news now for the group is that the funds for the additional financial needs have been tied up.

Official sources told Business Line last week that work on the project, now about 90 per cent complete, could start next month and the project could commence commercial production by March next year.

The year 2000-01 turned out to be a bad year for the group, when it had to dispose off its three ships - two owned by Balaji Distilleries Ltd and the third by Balaji Industrial Corporation.

It was a bite-the-bullet decision to dispose off the ships, for it was done at a time when the shipping industry looked like reviving. The dues against those assets to the banks and financial institutions had grown to such an extent that keeping the ship s would not have been profitable. There was little prospect of the freight rates improving to the level that the ships could pay off the growing dues and make money.

The three ships were purchased six years earlier for around $40 million. Last year, they were sold for around $12 million. Of course, the ships got the two companies tax (depreciation) benefits in the earlier years and made some money when the going was good.

But even taking into account these benefits, Balaji Distilleries and Balaji Industrial Corporation incurred loss on sale of the ships, which was why they had to report net losses of Rs 69.25 crore and Rs 55.39 crore, respectively, for last year.

Even the dependable distillery business was hit last year. Balaji Industrial's distillery in Andhra Pradesh had to be shut for about four months, because the Andhra Pradesh Beverages Corporation, the State's liquor marketing company, lowered the prices t o an unviable level.

The company proceeded legally against the state-owned marketing agency, and only after it won the case did production recommence. However, in the meantime, Balaji Industrial's products (UB brands) were off the shelves for four months, which, according to officials, tells upon the sales even after production has commenced.

The hotel project in Chennai, of Balaji Hotels and Enterprises Ltd, is now stuck for want of funds and officials expect it would be at least a year before the hotel can hope to open.

Balaji Distilleries is eagerly awaiting a hike in the state-controlled selling prices, which are today not remunerative. Officials say that liquor sales are not really price-sensitive and the Government may help the industry by raising the prices a bit. They point out that the liquor industry is a major contributor to the State exchequer.

Last year, Balaji Distilleries paid Rs 185.59 crore by way of excise duty, Rs 184.62 crore as sales tax and Rs 57.80 crore as vend fee, making in all Rs 428 crore.

The steel business of Balaji Industrial Corporation is chugging along, and the company is able to sell some construction steel in the vicinity of its plant in Nellore, Andhra Pradesh.

Today, even if the brewery project at Tiruvellore, near Chennai, takes off, the group has an uphill climb to make. It is in this context that negotiations are going on with banks and financial institutions, for a restructure of the interest payments due.