Analyst cautious on Avantha Group's listing of its 2 arms

Paper-to-power conglomerate Avantha Group is on a restructuring drive in an attempt to ensure fresh capital infusion, cost-trimming and improvement in margins. So while Avantha Power will make a second attempt at launching its initial public offering (IPO), the company's transformer manufacturing arm, Crompton Greaves , will substantially trim its international workforce. But analysts remain skeptical whether these measures will be enough in reviving the fortunes of the group. CNBC-TV18's Farah Bookwala and Gopika Gopakumar report.

Two years ago, adverse market conditions forced Avantha Power, to scrap plans to launch its Rs 1,500 crore IPO . However, the group company of the USD 4 billion Avantha Group is now powering up to hit the bourses again. It looks to infuse capital to expand its power generation capacity from the current 191 MW to 3971 MW over the next few years.

B Hariharan, director-finance, Avantha Group said, "We will raise about Rs 1,250-1,500 crore. We will come with the issue around July-August this year."

Similarly, the group has also revived plans to list two other companies. One, Sabah Forest Industries, the Malaysian subsidiary of its pulp-and-paper business Ballarpur Industries will be listed on the London Stock Exchange to raise USD 330 million to fund expansion and reduce debts in Q2FY14.

A separate listing is on the cards for BILT Graphic Paper Products on the Singapore Stock Exchange to boost the company's valuations; this too, will take place in Q2FY14.

But analysts remain cautious with Ballarpur Industries seeing its EBIDTA slip to 16-17% from 25% over the last few quarters, .as input costs remain steadily high.

Meanwhile, Avantha Group is also undertaking a severe cost-cutting exercise in the European operations of its transformer manufacturing business, Crompton Greaves. The company, which began shifting its operations in FY13 from Belgium to Hungary to rationalise costs, will slash its European workforce this fiscal.

B Hariharan, director-finance, Avantha Group said, "We have done major restructuring in Belgium. We have finalized that and getting rid of about 200 employees there. That is going to save the company USD 15 million on an annual basis."

While the management believes this move will restore Crompton Greaves'' margins, the analysts do not see any recovery in sight. They argued that the one-time settlement fee, the company would have to discharge to its terminated workers coupled with declining domestic prices of transformers, and stiff competition from Chinese manufacturers that are setting up plants in India, will keep margins under pressure for the next two years.

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