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Billionaire brothers may quit mining biz

Bloomberg/Chennai 24 Nov 12 | 12:54 AM

Gulf Oil Corp, controlled by the billionaire Hinduja brothers, may exit the mining business as restrictions on excavations in India slow demand for its services to extract coal, iron ore and minerals.

The company may also consider separating the division into a subsidiary, Managing Director Subhas S Pramanik said in a phone interview from Hyderabad. The unit IDLconsult, which accounts for about 12 per cent of revenue, has reported an operating loss for three straight years, after the government clamped down on illegal extractions and delayed mining approvals citing environmental norms.

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“We are tired of waiting for government policy on mining to change," Pramanik said adding that the company hasn’t taken a final decision on retreating from the business. “We are idling so much of our machinery and people."

Exiting the unit may help Gulf Oil, which is buying Houghton International Inc. for $1.05 billion in the biggest acquisition by an Indian company this year, to increase focus on selling industrial lubricants, said Shailesh Kumar, an analyst with Indsec Securities & Finance Ltd. The company’s revenue in the year ended March 31 from selling products to grease machines, engines and clutches rose 38 percent in Asia’s third- largest automobile market.

“The company’s focus is shifting to larger segments," said Kumar. Gulf Oil doesn’t “have the kind of manpower and they don’t have management bandwidth as well to look into so many businesses," he said.

The share of lubricants in the company’s revenue rose to 71 percent in the year ended March 31 from 50 percent in 2008, according to data compiled by Bloomberg.

Explosives business

The company on Oct. 4, 2010 said it had separated its explosives business as demand for detonators to clear land for mines had plummeted. The unit, which accounted for 23 percent of sales, reported an operating loss of 19.2 million rupees ($348,236) in the fiscal year.

Gulf Oil’s shares, which have dropped 3.3 percent since it announced the plan to purchase Houghton on Nov. 7, fell 0.7 percent to 83.50 rupees in Mumbai at 10:40 a.m. Larger rival Castrol Ltd. rose 1 percent to 296.75 rupees.

Most of Gulf Oil’s mining contracts are in the eastern state of Odisha. Steel Authority of India Ltd., the country’s second-biggest maker of the alloy, will stop work at an iron ore mine in the state to make way for an an elephant corridor, two people familiar with the matter said.

India rejected billionaire Anil Agarwal’s Vedanta Resources Plc’s bid for permits to mine bauxite at Niyamgiri hills in Odisha, citing the effect they would have on tribes and wildlife.

Market share

“We are not allowed to work because of regulatory issues," Pramanik said. “This is the problem with the whole mining scenario in the country."

Purchasing Houghton, which makes lubricants used by steel mills, corrosion-protection chemicals for aircraft makers and fluids needed to produce prosthetics and surgical devices, will help the company control 12 percent market share in the lubricants for metals, Ravi Chawla, president of the lubricant division, said in an interview on Nov. 16 in Chennai.

The company, which has a factory to make the lubricants in western India with an annual capacity of 75,000 metric tons, will “finalize within a month" a plan to build a new plant with the same capacity in south India, he said.

Gopichand Hinduja and his brother Srichand acquired Gulf Oil, which traces its origin to the 1901 U.S. oil boom in Spindletop, in 1985. The brothers, based in London, are estimated to have assets valued at $8 billion, according to the website of Forbes magazine.

Loan transaction

The group, founded in 1914 by their father Parmanand, also has interests in energy, chemicals, health-care, film production, media, real estate, finance and information technology, according to its website. It controls Ashok Leyland Ltd, India’s second-largest truckmaker.

Gulf Oil has hired Royal Bank of Canada to arrange $835 million loan to fund the Houghton purchase, according to a person with knowledge of the transaction. The company will meet investors next week in New York and London, said the person, who asked not to be identified because the information is private.

The company based in Hyderabad agreed to buy closely held Houghton from private equity firm AEA Investors LP, according to a statement on Nov. 7. Gulf Oil and its units had 2.2 billion rupees of cash and equivalents and 3.5 billion rupees of total debt as of March 31, according to data compiled by Bloomberg.

The Valley Forge, Pennsylvania-based Houghton reported sales of $858 million in the year ended Sept. 30, according to the Nov. 7 statement.

Houghton’s purchase will help Gulf Oil expand from supplying lubricants only to automobile companies, which “are experiencing a slowdown in growth," Mohit Chopra, Gurgaon, India-based executive director at PricewaterhouseCoopers said. Lubricants will account for 90 percent of Gulf Oil’s revenue once the acquisition is complete, he said.


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