Shankara Building Says Asset Sale To Address Liquidity Concerns
The asset sale will address the liquidity issue and reduce the working capital of Shankara Building, says Sukumar Srinivas.
Shankara Building Products Ltd.’s wholly-owned subsidiary’s plan to sell its largest processing facility in Telangana will allow its parent to focus on retailing and marketing, according to its Managing Director Sukumar Srinivas.
Taurus Value Steel & Pipes Pvt. Ltd. agreed to sell its 2-lakh-tonne processing facility to APL Apollo Tubes Ltd. for Rs 70 crore to strengthen the consolidated balance sheet of Shankara, the building material retailer had said in an exchange filing.
“Though we have sold the asset, we will be buying the products from APL Apollo which means that we are not losing out on the availability of the products,” Srinivas told BloombergQuint. “The sale of this asset will address the liquidity issue and reduce the working capital of Shankara as a lot of it was blocked in raw material.”
Aggressive store expansion, increase in stock keeping prices, lower margin in processing has led to higher working capital for the company, forcing it to reduce its processing volume, halt its store expansion plans and focus more on cash sales.
Maulik Patel, director of Equirus Securities, said that the sale seems to be a distress sale as valuations are significantly lower than its peers.
The management, however, said the sale value of the asset is apt and it is not expecting any loss on the book value of the asset.
The asset, according to Equirus Securities, represents nearly 60 percent of Shankara’s overall processing capacity and around 16 percent of the consolidated operating profit. Post this transaction, the company’s total debt including acceptances is expected to reduce to Rs 300 crore from earlier Rs 420 crore, it said.
Earlier in December, the company had also lowered its earnings before interest, tax, depreciation and amortisation margin expectations in a move to improve its balance sheet.