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ICI – Revamping its ‘core’ business

Aug 21, 2000

Paints and speciality chemicals major, ICI India, has laid out major expansion and restructuring plans for all its division. Accordingly the company would be divesting its pharmaceutical, rubber and the polyurethane businesses and it would be venturing into fragrance and starch businesses. The company is supposedly in talks with some multinationals to divest these businesses that account for almost 50% of the turnover. Though this is seen as a positive move, the new businesses have raised apprehension about the focus of the company.

ICI India: Unclear strategies…
What's out Turnover
(Rs m)*
What's in
Pharmaceuticals 440 Starch
Rubber chemicals 1,128 Industrial and food starches
Polyurethane 520 Fragrance and flavors
Nitrocellulose 359  
Textiles 718  
Total 3,165  
Sales (FY00) 8,999  
% of total 35.2%  

Adding to the woes, the prospects for the current year are also bleak. The sharp rise in the global crude prices has put enormous pressure on margins as key raw material prices have gone up considerably. The rubber chemical business may also have to deal with declining prices on account of intense competition. Though emulsion polymers and water-based adhesives have good market potential (the company has planned to introduce these products under the starch segment), it may take some time for it to fine-tune these areas. However, good monsoons and growing demand for houses should enable the company in posting better volumes.

Anyway, for things to fall in place a clear-cut bifurcation between the core and the non-core areas is the need for the hour.

The stock is currently trading at Rs 73 at a P/E multiple of 13 on the annualised FY01 earnings.

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