Jubilant Industries Ltd

Jubilant Industries Ltd (JIL) – Scheme of Arrangement a wealth creator or destroyer?

JIL has come out with a scheme of arrangement wherein its Agri & Consumer Division will be transferred to its wholly owned subsidiary company Jubilant Agri & Consumer Products Ltd (JACPL). There is nothing wrong with this as long as, aim is to give undivided management attention to this business. But what is really disturbing is merger of hugely loss making  Mall & Hypermarket business (Retail Business) of promoters closely held company Enpro Oil Pvt Ltd with JACPL.

Retail Business which is getting merged with JACPL has been making huge losses since inception, having made loss of over 300 cr since inception. During FY11 alone loss was in excess of 71 cr on a turnover of Rs 300 Cr. against JIL Profit before Tax of only Rs 40 cr during FY11. Thus loss of retail business exceeds the profit of JIL.

With the merger of Retail Business with JAPCL, profit of Agri & Consumer division which is getting transferred to JAPCL will be used to finance the losses of Retail Business.

Besides this loss making retail division, JAPCL is also taking over loan and net current liabilities of over Rs 238 cr from the promoters.

Now the question is what is the rationale of this merger? Is it that the management wants to share the so called bright prospect of retail business in India with the public shareholders, or it wants to fund the loss of a privately held company with the profit of a listed company at the cost of minority shareholders.

Given the finance of the retail business, certainly management is not sharing goodies with the minority shareholders, so ultimately, it is the loss which is getting transferred from closely held company to the listed entity. As usual, minority shareholders are taken for a ride.

Above all, this is coming to the shareholders of JIL at a cost of Rs 200 cr. (Present market value of 38.35 lac shares of JIL to be issued to the promoters in consideration of retail business and excess of liability over assets of Rs 123 cr to be taken over by JAPCL).