Oricon - monetization of land bank

[Shah, Vikas (IND Int)]

Mr. Adarsh R. Somani, Director, Oricon Enterprises Ltd, a company which has business interests in Marine Logistics & Infrastructure, Packaging, Real Estate Automobile Dealership & Petrochemicals. A B.Com from HR College, Mumbai, he was the CEO of fast moving consumer goods company and was involved in creating and building the FMCG range of products under the brand “Smyle” prior to his appointment at Oricon.
 
Oricon Enterprise Ltd, acquired in 1968, Oricon Enterprises Ltd. formerly known as Oriental Containers Ltd. was mainly into packaging, real estate and petrochemicals. In Sept ‘06 the company entered into 30:70 JV with M/s Navigate Mauritius Ltd. – a private equity investor, for its packaging division. Accordingly, the new joint venture was named as Oriental Containers Ltd., which had the packaging division and the parent company renamed as Oricon Enterprises Ltd. Oricon Enterprises, the flagship company of Parijat Enterprises is currently in Real Estate, Marine Logistics, Packaging, Petrochemicals and Automobile Dealership.
 
Speaking with Kalpit Oza and Anil Mascarenhas of IIFL, Adarsh Somani says, “Oricon’s first priority is to effectively, efficiently and timely monetize the real estate and enhance shareholder value by diversifying into business segments which are futuristic, growth oriented and scalable in nature.”
 
Your company has been around for over six-decades. Which are the segments you are now focusing on?
Logistics and packaging are the flagship businesses of the company. We entered into logistics business through United Shippers Ltd (USL), which is a debt free company with a cash balance of Rs. 0.60 bn. USL is the leading dry cargo handler in the country, with volumes close to a record 70,00,000 MT.  We expect to achieve a PAT of Rs400mn this fiscal as against Rs300mn last year. Presently, we are operating on the West coast.
 
USL has a JV with Dharamtar Infrastructure Ltd (DIL) and holds 39.6%. DIL has land bank of 150 acres (which we plan to increase to 400 acres) and is ideally located. Besides close proximity to JNPT port, it is just 6 kms away from NH-17 and only 500 m away from SH-4B thereby giving road and sea connectivity. At Dharamtar port, we have now constructed railway siding which will be ready in a month and this makes us one of the few minor ports offering tri-modal connectivity of sea, rail and road.
 
USL is engaged in the business of lighterage, stevedoring and logistics and operates through ports in Gujarat, Maharashtra and Goa. Coal forms 90% of the logistics business and considering the huge requirement of coal imports in future, we are indeed very optimistic about this business. USL also handles cargos like, petcoke, polypropylene polymer, cent, clinter, steel plates, salt and sugar.
 
How much stake does Oricon own in USL?
Oricon holds 50.19% in USL while 15% is held by the chairman of USL. The remaining 35% stake is held by strategic investors like Oxbow Coal B. V. of USA, Logiscor Ltd. (Scorpio Group) of Marshall Island, Coeclerici Logistics S. P. A. of Italy and Enam (Mr. Vallabh Bhansali) Group.
 
 
What is the size of the packaging industry? Who are your main customers?
The entire market for packaging in India would be ~Rs10 bn and the Top 5 players would easily control ~80% of the market. Oriental Containers Ltd has completed two major expansions recently and has a total capacity of 10 bn units. In the year 2006, 70% stake of Oriental Containers was divested (on slump sale basis) to a private equity player Navigate Mauritius (Navis) while 30% was held by Oricon Enterprises Ltd. We are market leaders in metal crown caps and plastic closures with clients like Pepsi, Coca-Cola, Hindustan Unilever, United Spirits, etc.
 
Given the fact that large players have stringent requirements in terms of quality and services, they approach only approved vendors who have the size, capacity and service capabilities. To that extent we are not much affected by the unorganized market.
 
Could you briefly tell us about the restructuring done in your organization?
The promoters of the company in their private capacity held majority stake of the ~2 acres of land, next to the 5-star hotel Four seasons at Worli.
 
Additionally, the promoters also held in their private capacity 50.19% stake in United Shippers Ltd. The company proposed a merger last year, (High Court approval was received in Aug’2010) whereby the promoters of the company merged the land and their stake in USL with Oricon Enterprises Ltd thereby making it an asset rich company. In consideration for this, the promoters were issued shares of the company thereby increasing their stake from 55% to 70%. The objective of the merger was to pump in assets to the company which have huge potential.
 
What is the current status of the real estate division of the company?
Let me clarify that we are not into the real estate business. What we are doing is monetizing our assets. Last year we had obtained ~50% of tenant consent. Once you get 70%, the rest 30% has to fall in line as per MHADA regulation. Presently, we have ~75% tenant consent and a lot of builders have shown interest for a JV.
 
As I mentioned, we plan to monetize the asset gradually in the next 3-4 years. Oricon is expected to receive 2.25 lac sq.feet and on a conservative basis, it should bring us direct cash inflow of ~Rs7.5bn.
 
Oricon Enterprises also plans to re-develop the Oricon House at Worli, Mumbai.
 
Similar real estate stories have seen projects in the limbo.
Let me re-emphasize we are completely different from the companies that have real estate as their core business. For information, we had acquired this land long back at apx. Rs. 30mn, cost of which is dwarfed into the balance sheet. Unlike others, we do not have any debt obligation against the purchase of the land; so there is no interest cost which could create the usual hassles in case of a severe slowdown in the real estate business.
 
The problem with many of the real estate players is they acquired land against debt in the books and took advantage of leverage during uptrend. When the downturn came they had to face severe losses as interest cost eats up the entire profitability.
 
You mentioned monetization of land bank will result into cash inflow of ~Rs7.5bn. Do you have any firm plans on how to utilize this cash?
We are currently evaluating options for the deployment of the cash. Oricon is almost a debt free company and would utilize the money to invest in business which we understand best. We would consciously avoid entering into any new un-related business ventures. So maybe we will invest in logistics or Infrastructure business. Alternatively, we can also utilize cash to buy the remaining stake (70% in Oriental Containers Ltd.). We may also consider giving some handsome dividends to shareholders. However nothing has being finalized as yet as we are still evaluating various options.
 
How is your automotive business doing? Is the Etios launch set to give this business a boost?
For over a decade, Shinrai Toyota is an exclusive dealer of Toyota cars in South Mumbai. We sell over 300 cars per month and service almost 2,000 cars per month. The first five years of this business failed to yield the desired results as Toyota’s Qualis was not really a south-Mumbai car and Camry at the higher end was very expensive. The actual spike in business came in with the launch of Corolla and Innova and in recent times the success of Fortuner. These three models have generated good business for the company. Traditionally inventory levels were at higher level so the company had to offer discounts for promoting sales and effectively large part of income was generated from servicing and selling accessories.
 
Given the strong demand and the long waiting period, offering discounts is a thing of the past; we have now started generating income from selling cars as well.
 
As far as Etios is concerned, the waiting period is of ~9 months. The launch of Etios (Sedan and hatchback) will result in yet another spike in revenues for Toyota in India. We hope that Etios will take the business to another level.
 
What is your Petrochemical business all about?
We manufacture mixed pentane and heptane – A petrochemical with industrial applications. The manufacturing facility is located at Khopoli (Maharashtra) with a capacity of 10,000 tones per annum. Some of the prestigious clients are Reliance Petroleum, IPCL – Baroda Nagothane, Tamil Nadu Petro-Products Ltd., Nirma, LG.
 
It is a very small business, and we plan to exit this business maybe in the next one year. It’s a very niche market product with very low growth and export potential.
Since our objective is to undertake businesses which are scalable and present good growth opportunities, we do not foresee any growth opportunities in this business.
 
You also have Kopran and Claridge Moulded Fibres in your group.
Kopran is a part of Parijat Enterprises and is an integrated Pharmaceutical Company manufacturing a large range of products including Active Pharmaceutical Ingredients and Finished Dosage Forms. Kopran Laboratories on the other hand markets and distributes medical equipments across India.
 
Claridge Moulded Fibres is also part of Parijat Enterprises and is a pioneer in the field of Moulded Pulp Packaging and started the first egg tray unit in India, in 1966. In 1978, CMFL pioneered the launch of the eco friendly Apple tray in HP India which replaced the wooden crates. These companies are not in the listed entity.
 
Could you throw some light on the new business ventures that are planned?
We have invested into two new businesses a) Alternative Fuel (Claridge Energy LLP) and b) Liquid Colorant.
 
Claridge Energy has an eco-friendly white coal capacity of 1.25 lac MT in India. Business is expected to commence next April. We have had successful trials with companies like Hero Honda, Thermax, Coke and Pepsi. Besides being tax-free, the users of this product can also earn carbon credits. We plan to scale the capacity to 5 lac MT in the next two years.
 
Liquid Colorant is a small business at present. As against the ‘solid master batch’ that is currently used to colour plastics, we have tied up with Color Matrix of UK to improve the technology. The result is a liquid colorant, which has a far superior finish, homogeneity, uniformity and even better aesthetic appeal. This again is a high margin business and we are still in the trial stages.
 
What is the vision for your company?
Our first priority is to effectively, efficiently and timely monetize the real estate and enhance shareholder value by diversifying into business segments which are futuristic, growth oriented and scalable in nature.
 

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