Privatization could potentially turn India’s oldest pharmaceutical company, 125-year old Bengal Chemicals and Pharmaceuticals Ltd into a real estate play, say key officials and experts.
The company has a 1.65-acre property in central Mumbai’s Prabhadevi neighbourhood, which may not be carved out ahead of the strategic disinvestment of the central public sector enterprise.
At conservative estimates, the property is worth at least Rs1,000 crore, P.M. Chandraiah, the company’s managing director had said in an interview in October, based on a valuation done by an external agency. If properties in Kolkata and Kanpur are considered, the company has assets worth at least Rs1,500 crore.
In December, the Union cabinet had approved the sale of surplus land, according to a key official at Bengal Chemicals, who asked not to be identified. However, there is no immediate plan to sell or carve out the Mumbai property on which stands a seven-storey building, he added.
Bengal Chemicals would surely get the attention of real estate developers because of its properties across India, said O.P. Pareek, partner at VN Purohit and Co., an audit firm that has previously been one of Bengal Chemicals’ internal auditors.
The motivation for such acquirers “may not necessarily” be revival of the firm’s core business of chemicals and pharmaceuticals and make money out of it, said Pareek.
To be sure, any company bidding for Bengal Chemicals will have to account for its fixed assets, including the prized Mumbai property.
The successful bidder will have to pay for the real estate assets, and it will be impossible to justify the price by the cash flow of its core business, said the official cited above.
Chandraiah had said that in the current fiscal year, Bengal Chemicals’ operating revenue will go up to Rs110 crore and to Rs200 crore by 2019-20. Freed of working capital constraints and under private ownership, the company’s performance may improve at a faster pace.
Founded in 1892 by Prafulla Chandra Ray, a scholar-turned entrepreneur from Kolkata, Bengal Chemicals manufactures a wide variety of generic drugs apart from Aqua Ptychotis—an anti-flatulent—Pheneol floor cleaner and Cantheridine hair oil.
It became one of India’s most successful pharmaceutical companies by the 1930s with shareholders from across India, but has only gone downhill in the past six decades. Only recently, it had started to turn the corner.
Though many of its brands have a storied past, the firm has not had the resources to aggressively market them, allowing sales to contract. As mandated by the government, it focused on production of cheap generic drugs after it was nationalized in 1981.
To address a similar situation, the National Democratic Alliance government had in the early 2000s carved out surplus land from Videsh Sanchar Nigam Ltd (VSNL), a listed state-owned telecom company, before selling a quarter of its shares to the Tata group under a disinvestment programme.
“Ideally, the VSNL model should be followed for the strategic sale of Bengal Chemicals too,” said Roopen Roy, partner at Sumantrana Management Consultants Llp. “Assets not core to the company’s operations should be spun off, and the government should seek buyers on the intrinsic strength of the company,” added Roy, who was previously the managing director of Deloitte Consulting India Pvt. Ltd.
Bengal Chemicals is currently looking to sell only five acres of surplus land at its 45-acre Panihati factory in the outskirts of Kolkata, said Chandraiah, adding that this unit has more land that the government may decide to sell later.
That apart, the company has around 20 acres in a prime residential neighbourhood of Kolkata, and three acres in Kanpur. With cash flows improving—after years of losses, Bengal Chemicals reported an operating profit of Rs2 crore in the six months till September—the company is looking to restart a mothballed unit at Panihati, West Bengal, according to Chandraiah.