According to newspaper reports, Voltas Limited - part of the Tata group, has decided to shift its entire manufacturing operations to Vapi, Gujarat, and close down its Thane facility in a phased manner as part of its restructuring programme.
Engineering and air-conditioning major Voltas (FY99 turnover: Rs 9.8 bn) is engaged in the production of machine tools, mining/construction equipment, pumps, textile and electrical machinery. It is the market leader in central air-conditioning.
The restructuring package includes sale of part or entire stake in certain group companies, greater focus on engineering products and services. A new voluntary retirement scheme, which aims to prune employee strength by 2,000 in the next couple of years, is also in place. It will also restructure its textile machinery, mining machinery and machine tools businesses. A business plan for the next three years is also being conceptualised.
Managing Director N D Khurody said that the company would also change its focus from being a manufacturing-based company into an assembly operations one. It will imply hiving off all possible manufacturing operations and outsource for final assembly, and as a result bring down investments in manufacturing. Voltas has identified Perfect Moulds Limited, which would be hived off as a joint venture with a foreign company. It has already announced its intent to sell off Premium Granites, Voltas Switchgear, AgroChem and its 26% stake in Electrolux Voltas Limited.
Shifting base to Vapi will mean reduction in octroi and labour costs. Mr Khurody estimates that the shift will result in cost savings up to 18-20%. Voltas will transfer the forklift business to Vapi to begin with and later look at heavy engineering and pumps as well.
The strategy is part of the bigger Tata plan, which is looking at exiting from non-core businesses and cutting costs, thereby generating at least 25% returns on investments. The exercise will make Voltas a leaner and effectively, a more profitable company. This should be welcome news for the shareholders. The only barrier will be getting the employees to accept the retirement package.
Voltas has announced the third quarter (3QFY16) results for FY16. The company has reported a 38.6% YoY growth in sales while net profits fell by 49.5% YoY during the quarter. Here is our analysis of the results.
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