Duncans demerger plan hits a road block

The demerger of the Gouri Prasad Goenka group flagship, Duncans Industries, is unlikely to happen.

The company is now exploring the possibility of restarting the fertiliser division, and has already approached banks and financial institutions for funds.

G P Goenka, chairman of the group, said given the developments surrounding the fertiliser division, the demerger may not take place.

Duncans had convened an extraordinary general meeting to seek shareholders' approval and moved court for the demerger. The matter is still in court.

Out of a total turnover of Rs 1,100 crore (Rs 11 billion), the fertiliser division accounted for around Rs 870 crore (Rs 8.7 billion). The balance came from the tea business.

But, the division has been closed for a year now, and the working capital has been completely eroded.

Due to the central government's notification for downgrading revise retention prices for urea with retrospective effect from April 1, 2000, Duncans was expected to return an estimated amount of Rs 200 crore of fertiliser subsidy to the central government.

However, the company obtained a stay order on the notification and the matter is still pending before the courts.

Goenka said the fertiliser division required funds to the tune of around Rs 100 crore (Rs 1 billion). While the company has approached banks and institutions for funds, a part may also be garnered through sale of surplus assets.

Under the earlier plan, the tea and fertiliser divisions were to be demerged and the demerged fertiliser company was to be christened Duncans Fertiliser.

Chand Chhap, the main brand of the fertiliser division, had a significant share in the fertiliser market in north India.

The tea business, on the other hand, along with the wholly owned subsidiary, Santipara Tea Company, was to be merged into group company Subh Santi Services.

Duncans has three divisions -- fertiliser, tea and infotech. As per plans, the infotech division would have been merged with Duncans Fertiliser.

The decision to demerge the divisions had been driven by a realisation that there was little synergy between the three divisions.

The group is being advised by Lodha & Co on its restructuring plan.