Century Textiles and Industries, once a star among Indian investors, is looking to demerge its textile business. It may merge it with Aditya Birla Fashion & Retail (ABFRL) to bring the entire textile and fashion business of the Aditya Birla Group under one roof.
In the past one year, ABFRL itself has undergone major restructuring under which the fashion business of Aditya Birla Nuvo - comprising Madura Garments - was merged with the company, making it the largest fashion retail player, with consolidated revenues of Rs 12,000 crore.
Century earned about Rs 1,817 crore, or 8.6 per cent of total revenues, from its fabrics and denim business and is a supplier to ABFRL. Analysts said, with a new management led by Birla Group chairman Kumar Mangalam Birla now taking charge, a restructuring of its businesses is now inevitable. After raising their stake through a preferential offer, the Birlas have consolidated their grip over the company by inducting Rajshree Birla on the board of Century Textiles in May last year. Kumar Mangalam Birla is vice-chairman of the company, even as present chairman B K Birla is unable to look after the day-to-day affairs of the group due to failing health.
Analysts said Century Textiles’ financial metrics have declined, mainly due to its high debt, which shot up from Rs 2,621 crore in FY11 to Rs 5,320 crore in FY16. The interest costs have corroded its profit after tax, which fell from Rs 237 crore in FY11 to a loss of Rs 54.5 crore in FY16 (see chart). Besides, due to falling demand and pressure on selling prices of cement, the financial performance of cement units has also suffered. “Going by the pressure on financial metrics, a restructuring or outright sale of some businesses is only a matter of time,” said an analyst.
In the textile business, Century has two revenue streams: cotton fabric and denim units that can be integrated with ABFRL’s businesses. The company has a vertically integrated plant at Bharuch for manufacturing cotton fabrics. The cotton division of Century is one of the oldest players in India and manufactures a wide range of premium textiles and supplies to many international players, including Royale Linen, Ralph Lauren, DKNY, Belk and US Polo.
Century Textiles was also in the news
last year when it was reported the company would merge its cement division of 14 million tonnes per annum with Aditya Birla Group’s UltraTech. But with UltraTech investing close to Rs 20,000 crore to acquire Jaypee’s cement capacity announced in March this year, the Century cement merger plan has been put on the back burner. Analysts said post takeover of Jaypee units, any merger of Century’s cement business with UltraTech could trigger sale of the new entity under anti-competition laws. Hence, the Birlas would like to keep both entities separate.