SPIC TURNAROUND

SPIC is among the oldest south based fertilizer companies and was promoted by Dr. A.C. Muthiah, one of the biggest industrialists from South India. SPIC was a blue chip company in the early Eighties but the ambitions of its promoters to make it bigger & bigger by spreading into unrelated diversifications, which let it into a debt trap losing heavily and proving incapable to meet its increased interest burden and depreciation cost.
SPIC’s business can be broadly divided into its four divisions:
(1) Fertilizer (2) Pharmaceuticals (3) Engineering & Construction Services (4) Agribusiness


Besides these businesses, SPIC has made several strategic investments in subsidiaries and joint ventures such as
Indo Jordan Chemicals Co. Ltd., Jordan
SPIC Fertilizers & Chemicals FZE, Dubai
SPIC Petrochemicals Ltd., India
Indital Chemicals Ltd., India
Tamil Nadu Petro Products Ltd., India
Technip India Ltd.
SPIC JEL Engineering Construction Ltd., India
Gulf SPIC General Trading & Contracting Co. WLL, Kuwait
Tuticorn Alkali Chemicals & Fertilizers Ltd., India
Manali Petrochemical Ltd., India
SPEL Semi-conductor Ltd., India

Despite such widespread activities, it is really so sad that the SPIC stock was available at a throwaway price of just Rs.20 six months back, Rs.22 - Rs.25 three months back and Rs.30 now.
Despite doing business in billions, the SPIC management could not provide the thrust nor could it succeed to make a good investment in any out of the many.
It is also sad from the management perspective that the SPIC share is languishing when Construction & Engineering are at its zenith. Why did its ventures in this line of business not flourish? Again, there is a big boom in real estates. Why is the company sitting on huge land holdings and not succeeded in clinching any deals, which could take care of its unmanageable debt? These are issues that Dr. A C Muthiah should have taken seriously to enhance shareholders value.
Five years ago, Century Textiles was lying low at Rs.25 despite its several arms like SPIC with Rayon, Paper & Pulp, Cement, Textiles, Shipping, etc. just as SPIC today. But today, Century Textiles has bloomed with its success plan although its Textiles Division is still incurring losses. But its share prices have hit the roof touching Rs.700 from Rs.25.
An elephant never dies so soon. And just as the ocean never dries, a corporate giant like SPIC cannot be written off. Its story is even stronger than Century Textiles but then the question now is Will Dr. Muthiah compare himself with his two competitors like the U.B. group & Murugappa Group who are star performers of South-based industries.
SPIC is one of the largest fertilizer companies manufacturing Urea and Phosphoric fertilizer shown under the plant capacities table.
Interestingly the company’s plants are producing higher than their rated capacities.
With such huge capacities, the company’s financials have not been commensurate with its size, operations & business as shown in financial highlights.
It is impossible to give detailed product profiles and performances of its various divisions and joint ventures in this article.
The improved performance during the year 2004-05 was on account of one time gain on restructuring of floating rate notes amounting Rs.212.54 cr. There are still many areas, which the SPIC management may take up to restructure to bring the company out of the debt trap either by way of divestment or equity dilution or attracting co-partners.

Equity Capital: Despite its large size, the company’s equity is relatively low at Rs.88 cr. in today’s context.
Reserves: Out of its total Reserves of Rs.1101 cr. if we deduct Rs.781 cr. as Revaluation Reserves, there is a surplus of Rs.320 cr., which can take care of its Profit/ Loss account and carry forward loss of Rs.325 cr. Thus the company’s net worth is yet intact and positive. There is a possibility that this deficit can be set off during the course of the restructuring process without using its surplus.
The company, as stated earlier, is large and its Jordon Fertilizer venture is quite profitable. No sooner the company plans to divest even a few of its arms, it will generate ample funds to liquidate its debts and carried forward losses as happened with Escorts Ltd. earlier and the basis of its recommendation in this column a few weeks back.

Investments: the company has a whopping investment in Shares & Securities, the total sum of which is Rs.1035 cr. at cost some of these investments can fetch handsome profits on divestment like Escorts who divested its Heart Institute for over Rs.500 cr.

Outlook: SPIC once restructured, its future outlook will be quite good. The Fertilizer Policy announced last year will also strengthen all fertilizer units and SPIC will be a major beneficiary.
Market Price: The SPIC stock is worth accumulating at the current market price, which is very cheap like Century Textiles was five years back. It will yield handsome gains for the next generation as its price will shoot up. No sooner the management makes a success of its restructuring plan corping out the carried forward losses and curtail its outstanding loans to a reasonable level.

Conclusion: The SPIC share should be accumulated at the current market price for reaping a good harvest in the years to come as the share of such a giant company is strangely available at throw-away prices in such a booming market