Taurus Value Steel & Pipes Private Limited (wholly owned subsidiary of Shankara Building Products Limited) has an in-principle offer for purchase of partial assets including land, building and equipment located in Chegunta, near Hyderabad (Telangana) for a consideration of around Rs. 70 crores from APL Apollo Tubes Limited. These assets are a part of wholly owned subsidiary Taurus Value Steel & Pipes Private Limited (Taurus).

The proposed transaction is subject to shareholder approval. The assets proposed to be sold include 29 acres of land, 2.9 lacs sqft built up area and a large part of the machinery situated in the Chegunta unit.

Strategic reasons for the sale

♦  The asset sale is in line with our conscious effort to focus more on our core areas of retail and marketing of building products. The retail business has better profitability metrics and also higher growth prospects.

♦  Presence across the value chain of processing and retailing increases our cash conversion cycle. This can be challenging in a volatile price scenario. We witnessed this playing out in the second half of FY 19 where our performance was substantially affected by volatile steel prices. The asset sale will help us reduce our exposure to this volatility.

♦  The profitability of Taurus has been below par recently. We do not anticipate this to improve in the near term. As a nominal player in processing, we do not avail scale benefits. Since it does not make sense to increase capacities further, it is prudent to sell these assets.

♦  The release of the funds from this transaction, will help us focus on investments in our retail business. We need investments in supply chain, warehousing, logistics, retail store upgrades and new store rollouts. A strong balance sheet also helps us avail cash purchase benefits. It also reduces cost of funding for us, leading to lower interest outgo.

♦  One of the key aspects of this transaction would be the release of management bandwidth to focus more on the higher ROE business of retailing which has substantial growth opportunities.

Substantial release of funds from this asset

The proposed transaction include two components:

1. Sale affixed assets worth -Rs. 70 crores and

2. Implied release of working capital of-Rs. 100 crores

In essence, the implied transaction size is -Rs. 170 crores.

Fixed assets: The details of the fixed asset are as follows: 

♦  29 acres of land

♦  2.9 lacs sq ft of built-up area which includes 2.63 lac sq ft of factory building area, 0.27 lacs sq ft of workers quarters. In addition, there is a developed area of 2.23 lac sq ft

♦  Machinery includes a large part of the equipment situated in Chegunta including tube rolling mills, slitting machinery, galvanizing unit, effluent treatment plant, power equipment among others.