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Aarati Krishnan

THE hive-off of Indo Gulf Corporation's copper business to Hindalco is seen mainly as an effort to free the high-potential copper business from the policy-related uncertainties characterising the fertilizer business. It therefore seems to follow that the new Indo Gulf Corporation, left only with its fertilizer business would not be too attractive as an investment candidate. But this perception may not prove to be entirely true. The structuring of the deal may in fact ensure that the cash flows from the mature fertilizer business flow back to the shareholders instead of being used to finance copper operations.

If in the past, Indo Gulf's copper business has been weighed down by the uncertainties of fertilizers, the fertilizer business too has suffered from being tagged along with the capital-intensive copper operations. Given the vintage of Indo Gulf's fertilizer unit, the capital cost component on its operations are likely to be low. The policy-related uncertainties in urea continue. In fact, the Government is weighing a complete phase-out of the retention pricing system of urea in order to replace it with a flat subsidy. While the transitory period may prove difficult for Indo Gulf, the move may pan out in its favour in the long run. Being one of the lowest cost private producers of urea, Indo Gulf may well be one of the few players to make the transition.

The complete financials contours of the deal are not yet available. But the share exchange ratio of 5:1 ensures that the fertilizer business is left with a relatively low equity base of Rs.45.04 crore. This goes with sales of around Rs 468 crore (in 2001-02) and profits before interest and taxes of Rs 38 crore (in 2001-02).

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