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CHENNAI, May 12

IN a two-pronged restructuring move, the board of directors of EID Parry Ltd today decided to demerge the farm inputs division of the company and merge it with the subsidiary company, Coromandel Fertilisers Ltd. Concurrently, the board also decided to merge two wholly-owned subsidiaries of EID Parry, with the parent company. The two companies are Parry & Co and Mofussil Warehousing and Trading Company.

Under the proposed scheme, the shareholders of EID Parry will get one share of Coromandel Fertilisers Ltd for every three shares of EID Parry. The exchange ratio, approved by the boards of both the companies, was based on a joint valuation report of S.B. Billimoria & Co and N.M. Raiji & Co.

Addressing a press conference here today, the Vice-Chairman of EID Parry, Mr A. Vellayan, gave three reasons for the move. First, although both CFL and EID Parry had fertiliser units for many years, it was only now that the sugar division of EID Parry has grown to such a size that it (now) makes sense to convert the company into a `sugar company'. With four sugar units having a total capacity of 14,000 TCD, EID Parry is today the largest sugar producer in South India.

"The stock market seems to favour a pure-play company," rather than a company with diverse businesses, Mr Vellayan observed.

Asked if the sanitaryware business of EID Parry might come in the way of making the company a `pure play company', Mr Vellayan hinted that a demerger of the sanitaryware business could be looked into, perhaps some three years later.

The second reason was that the debt of EID Parry had now been reduced, so that the fertiliser division could be moved to CFL, without burdening CFL. Last year alone, Rs 106 crore of high cost debt of EID Parry was retired. The company's debt-equity ratio has come down from 1.3:1 in 2000-01, to 0.9:1 in 2001-02, and to 0.7:1 last year. After the restructure, the debt equity ratio will come down further to about 0.5:1, Mr Vellayan said.

Finally, the government's fertiliser subsidy policy also played a part in the decision to move the division to CFL. All these years, EID Parry has been marketing the fertilisers manufactured by CFL in Tamil Nadu. This added about Rs 300 crore to the turnover of EID Parry. But, of late, the Government of India has not been looking favourably at companies marketing fertilisers produced by another company, because of the possible misuse of subsidies given to the manufacturer. EID Parry had to go to the Government for permission to market CFL's fertilisers, once in six months.

As regards the other move, of merging the two wholly-owned subsidiaries with EID Parry, Mr Vellayan said that these subsidiaries had a lot of property (real estate), which were not paying much.

After the merger, EID Parry would sell off these properties. The company could get around Rs 70 crore in the next three years, Mr Vellayan said. This money could be used to fund the company's capital projects — a co-generation plant and an ethanol unit.

The co-gen plant is being set up in a `steam substitution arrangement' with Tamil Nadu Newsprint and Papers Ltd (TNPL). The terms are under negotiation. (Under the envisaged scheme, EID Parry will supply bagasse to TNPL for its raw material requirements. TNPL will in turn supply steam to EID Parry. The cost of capital equipment such as boiler, would be shared by both companies.)

The cash-flow from the sale of the properties and the compression in EID Parry's working capital requirement, consequent to the demerger of the fertiliser unit, will save about Rs 12 crore a year in interest costs, it was mentioned in the press conference.

The turnover from the fertiliser business (both from the sales of fertilisers manufactured by EID Parry as well as from the marketing of fertilisers produced by CFL), works out to about Rs 700 crore. In 2002-03, EID Parry's total turnover was Rs 1,321.76 crore.

Consequent to the issue of shares to EID Parry's shareholders, the paid-up equity of Coromandel Fertilisers will increase to Rs 25.41 crore from Rs 19.46 crore now. The promoters' stake will come down marginally.

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