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Smartlink Net
BSE | NSE 01/04/11
Smartlink Network Systems on Thursday sold its structured cabling business comprising manufacture, sales and marketing of structured cabling products, to Schneider Electric India for Rs 503 crore. The sold business made up for nearly 90% of the company’s revenues.
Justifying the sale, KR Naik, executive chairman of SmartLink said the entire sum of money will go back to the company. “The money is not taken out by promoters of the company,” he said adding, “We will give complete details to shareholders soon.”
Naik said the transaction will be completed in the next six-seven weeks. “I can’t comment on dividend/buyback to shareholders,” he said adding, “The dividend/buyback will be decided by the board.”
Below is a verbatim transcript of the interview. Also watch the video.
Q: The one question, which your minority shareholders would want to ask is, since nearly 90% of your revenues today comes from the business that you have sold, why could you not have sold a majority stake in your business in which case Schneider would also have made and open offer and given an exit to your minority shareholders?
A: Yes, that is a valid question. The brand personally belongs to KR Naik. It was registered and I sold it for Re 1. Under the non-compete clause, I could have taken minimum some money, right? Have I taken one rupee? That means there is no personal interest of taking the money for self. It is very clear. You show me one company which has done like this.
It is very clear because when I have not taken one rupee for taking personal interest that means there is some intention of doing this. It is very clear.
Q: That is a separate point the non-compete fee. I am asking you a simple question. This is 90% of the revenues of your company, so why not sell the company? Why sell the business? You are left with virtually 10% of revenues.
A: You think that way but I have some plans. DigiLink is already number1 brand in this country with 18% market share. Still we are number two in the turnover. Now to reach number one there are certain things required for this company I am talking one is the company, another is the brand business. The brand business have limitation growth here whereas going to multinationals and the kind of business we have to enter on the high end side, like enterprise, they need a multinational brother and that has become value add as far as DigiLink business is concerned, yes.
Now DigiLink, when it goes out, and we just introduced a year back DigiSol, which is active range of products, between passive and active the business is three times. It has become already as a fastest growing brand. We have become number two in just less than a year. Now this will be our real growth because we are the only company in India having factory almost 15 years making active product; having RD in Bangalore and every kind of set up for active products also.
We look in to that big growth and we have the same channel, which is built for almost 15 years. We have no problem for growing under DigiSol big way, in the next three years we should be number 1 position the way it has grown in just one year. I have more than 100 products in DigiSol.
The second thing is we have DigiCare where we have certain things. As soon as this transaction gets completed after shareholder approval, maybe it will take 6-7 weeks, and we will give complete details to the shareholders.
First thing is known that the money is now taken out by the promoter or big shareholders. Second thing is, as soon as complete transaction finishes, the first meeting will be press meet and giving all the details what is that we are thinking for this company’s next growth.
Q: So you are saying all the money that is raised from this sale will go into the listed entity all the Rs 500 crore?
A: It is in the listed company only. Nothing is in my pocket.
Q: Till yesterday, you hadn’t quite decided how you wanted to reward your minority shareholders. Is there any headway on that?
A: First thing is this transaction will be completed after six-seven weeks, after shareholders approval there is a procedure. The day we complete the transaction we will show you what is that; how this money will be used and how this company is going to grow. DigiSol is our next thing which in less than one year has become number two.
Q: That is fine. I am asking about whether or not the company is keen on providing any dividend payout or any buyback for your minority shareholders?
A: If you see our track record, we have been giving 100-150%. That means we are always giving at least 25% of our earnings that we promise in the beginning itself. Its earning. But on this I really dont know, it all depends upon what the board is going to decide.
Definitely, we will be taking some care of that that is shareholders concern. If you see our past record that gives a clear picture that we have been giving so much. Even we have given in between extra dividend. I dont remember maybe two-three years back.
Q: How big is DigiSol in terms of revenues?
A: DigiSol actually has got introduced just in six months because we are a public company. I cannot the number but now I can say it is substantially good. It was just in six months coming this way and you have seen the market you will know, the magazines you see what they say about the brand that can give the numbers, I cannot give you numbers just now.
Q: There is some concept of materiality to revenues as well. It is not about being number1 or 2. It would be about 10% of your revenues, right?
A: Definitely, little more or something, you can say 10%.
Q: So you have sold 90% of the operating revenue business and the DigiSol which is what you speak eloquently about is 10% of revenues today?
A: Yes.
Q: Which is my point, if you had to do this transaction, if you are so bullish on DigiSol, could you not have done a demerger of the DigiSol business, which is 10% of the revenues today. Got Schneider to buy into your existing DigiLink business at the kind of premium that you have got, which would have got every shareholder an open offer at the price which the business was being sold and they would still have had a share of DigiSol, which you are so bullish about to continue to hold to going forward? Why could you have not done that?
A: DigiLink we have got limitation for growth. I told you very clearly. With DigiSol we have got whole manufacturing facility everything is with us. We have not given away everything.
Q: What is the price which Schneider has paid for DigiLink, which you are playing down today? Why cannot that price be available to your minority shareholder? I am sure you would not have been singing that tune to Schneider who you sold DigiLink?
A: The problem is that can we take this forward? Whatever the value today has created, can we increase the value of DigiLink? You tell me. I know better.
Q: We dont know any better because you are not telling us what the listed entity’s value is in terms of revenues and profits.
A: We know how much we can grow. The other business which has got high growth where I have to concentrate, this has got limitations. I told you very clearly.
Q: Why dont you give us the sense of revenue potential? By the end of this year for the remaining entity of your listed stock, what kind of revenues can you actually deliver? Give us the guidance here?
A: I cannot give you just now. You have to wait till our transaction completes. We will have maybe another six-seven weeks. You will have to wait. We will have press meet. We will give complete details about what the company has in mind.
Q: It is not related. I am not asking you about the business you sold. I am asking about guidance for this business that is leftover that you say you will grow in leaps and bounds?
A: That will grow. Whatever numbers we have made this year, it will grow at least three times.
Q: I come back to that one point. You have sold a business, which you think has very little potential to grow, which had Rs 150 crores of revenues and you sold it for Rs 500 crores to an MNC company?
A: It is not Rs 150 crore. It is Rs 155 crore
Q: Okay, Rs 155 crore and you sold it for Rs 503 crore to a MNC company and you say that business had no potential. I am asking you why could your minority shareholders not have got that upside of this business, which they have every right to because they are shareholders in your company for which DigiLink gets 90% of the revenues today? Your view on whether you are bullish or bearish on that business has nothing to do with it. You were successful in selling that business at a 3.5 multiple of sales. Why is your minority shareholder not part of that upside today?
A: Minority shareholders are still part of this. I have not taken anything out that is what I am telling.
Q: But how? That is cash left in the company which they have no access to. Are you committing that you will pay Rs 500 crore out in dividend?
A: If I cannot do any other business with this.
Q: That is a judgment call whether you will do another business, whether you will be successful in that is your own judgment call. Why you are subjecting your minority shareholders to that?
A; It is not own judgment. There is a full board here. It is not a one man show here. Do you think decisions are taken by individual person? You are asking questions as if I own everything here.
Q: Who constitutes your board?
A: We have excellent people on the board. One Mr Baliga he is from TCS; one Mr Rane is there he is from Alembic and he was earlier in Lupin. We have one Mr Gaonkar, he was director in Reliance. We have Mr Rishi Krishnan, he is the professor of IIM College Bangalore.
Q: But against all that you still hold majority stake in the company right? So as a majority stakeholder can you tell us by how soon you are going to take a decision on what exactly happens with the leftover business?
A: As I said, this all can be told only after the completion of this transaction. We will be very clear because we are also working on certain things which we cannot disclose. We have to complete the transaction to give the complete details, we have been telling that. We know that, the whole money is there, we have not done anything which looks little awkward for taking the shareholders money by promoter or whatever it is.