Polycab India Limited, one of the best performing mid-sized companies in India and a maker of electrical goods, said it has decided to sell its copper rod manufacturing business to metal refiner Hindalco Industries, part of the Aditya Birla group of companies.
Polycab said it decided to take this step as Hindalco would be better placed to utilize the full capacity of Ryker Base Ltd.
The company will get around Rs 167.5 cr from Hindalco for the company. It will also be able to reduce its debt by another Rs 157.5 cr. The total ‘enterprise value’ of Ryker was assumed at Rs 323 cr, said the electrical goods manufacturer.
In return for getting Ryker, Hindalco will have to provide Polycab copper rods at a formula-determined price for several years.
“Ryker played a strategic role by manufacturing and supplying copper wire rods which is a key input for manufacturing wires and cables,” said Polycab. “However, considering the suboptimal utilisation of capacities and focus on core business, PIL decided to exit this venture.
“Furthermore, in order to ensure Polycab India’s strategic agenda of having robust visibility over its key input remains protected, the company has agreed to enter into a multi year tolling arrangement with Hindalco where Ryker will continue to process and supply high quality copper rods to PIL at mutually beneficial commercials,” it added.
The company said it considers Ryker a ‘great asset’ that uses state-of-the-art technology.
“After exploring various strategic options we believe this deal is a win-win proposition as the multi year tolling arrangement will ensure our supply chain dynamics remain intact and we continue to deliver highest quality of products to our customersk,” it said, adding that the move reflects the company’s focus on “disciplined and optimal capital allocation”.
The additional financial resources will be utilised to “intensify growth and make Polycab a formidable player in electricals space”, it added.
The transaction is expected to be completed by December end and is subject to fulfilment of certain conditions by both parties.
Polycab is the largest manufacturer of wires and cables in India.
It also sells electric fans, LED lighting and luminaires, switches and switchgears, solar products, pumps and conduits and accessories. The company has 50 warehouses and 23 manufacturing facilities