The group wants to sell the unit since it is a low-margin business, looks for a valuation of 1.5-2x annual revenue

Aditya Birla Nuvo Ltd (ABNL), part of the $42-billion Aditya Birla Group, has started talks with private equity (PE) investors to sell Aditya Birla Insulators, according to two people aware of the development. ABNL may sell the subsidiary for ₹ 800-1,000 crore, one of the two people indicated.

Both people declined to be identified.

Aditya Birla Insulators, which makes high-voltage porcelain insulators used in power generation, transmission and distribution, posted a revenue of ₹ 548 crore in 2014-15, up 8% from a year earlier. The group, which wants to sell the unit as it is a low-margin business, is looking for a valuation of 1.5-2 times its annual revenue, the first person said. A group spokesperson declined to comment.

The firm’s website says Aditya Birla Insulators is India’s largest and the world’s fourth largest manufacturer of insulators. According to industry experts, the market size of electrical insulators in India is approximately ₹ 2,000-2,500 crore.

“Overall slowdown in power transmission and distribution (T&D) projects and import of cheaper Chinese equipment affected the insulators business badly and the group wants to discontinue the business," said the second person cited earlier.

The industry had requested imposing anti-dumping duties after cheaper imports hit local manufacturers, the firm had said in its 2014-15 presentation.

The finance ministry had imposed an interim anti-dumping duty on imports of insulators from China on 16 September 2014, and later extended it till 15 September 2019 to create a level playing field for local manufacturers.

“The long-term imposition of anti-dumping duty on cheaper imports from China for five years will provide sustainable relief to the domestic players," Sushil Agarwal, whole-time director and chief financial officer, ABNL, said at the company’s 2014-15 earnings conference on 14 May.

In May 2014, a labour strike at the company’s Rishra plant in West Bengal affected production. It was restarted in June, after the company signed a long-term wage settlement with workers.

“The potential for network investment is substantive given initiatives for 24x7 supply, new urban development, inter-regional transmission and system strengthening, and while some states are aggressively investing, many are constrained by inadequate institutional capacity. The equipment industry is suffering from a combination of inadequate flow, lack of standardization and import substitution," said Kameswara Rao, leader (mining, utilities and energy) at consultancy firm PwC India.

The $4.4-billion ABNL started exiting non-core businesses a couple of years ago. In May 2014, ABNL IT and ITES Ltd, a wholly owned subsidiary, had divested its business and technology outsourcing firm Aditya Birla Minacs Worldwide Ltd to a group of financial investors led by CX Partners and Capital Square Partners at an enterprise value of $260 million (around ₹ 1,650 crore).

“Usually, once the management determines that it cannot or does not want to invest additional resources (both capital and management bandwidth) on a particular business, it is best to divest; otherwise, it impacts the return ratios. And rather than sustaining a non-core business, one would rather monetize its current value and use it for core operations," said Sanjeev Krishan, partner and leader (private equity and transaction services), PwC India.

In 2013, ABNL divested its carbon black business to the Mauritius-based holding company of the group, SKI Carbon Black (India) Pvt. Ltd, for ₹ 1,451 crore.

“The assessment of core and non-core is a key one and a business may be assessed as non-core if, in spite of enough time and effort, raising its competitive positioning has been hard. This can happen," Krishan added.

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