Manohar Bidaye, chairman, Zicom Electronic Security Systems Ltd (ZESSL) explains the reason behind company's strategic move.
Challenging business environment in the Middle East (ME) has led BSE-listed Zicom Electronic Security Systems to look at divesting stake to strategic investors in the two companies it operates in the region.
Zicom holds 95% in Dubai-based Unisafe Fire Protection (acquired in 2007) and Qatar-based Phoenix International (acquired in 2012) that contributed almost 65% to the company's overall turnover of Rs 1,100 crore last fiscal. According to industry sources, Zicom's firms in the ME are facing significant headwinds owing to major slowdown and delays in the construction sector. Also, with liquidity pressure building up, the management is planning to bring in a strategic investor to revive the operations.
Speaking to dna, Manohar Bidaye, chairman, Zicom Electronic Security Systems Ltd (ZESSL), said the reason we are looking at a strategic deal in the two companies is because the ME economy has undergone a lot of changes post the fall in oil prices. "A lot of projects there that were mainly funded through oil money have either got stuck or are moving very slowly. This has caused liquidity issues for a majority of the companies as payments are not getting cleared by contractors. This has resulted in a large pile of debtors and non-recovery of debts for a lot of companies including ours," said Bidaye.
While oil prices have gradually started moving north, the Zicom management believes they haven't recovered enough to support the Middle East economy. "The ground scenario there is more or less the same. Besides, with local banks withdrawing support for small and medium-sized industries, it has further aggravated the situation. Keeping this scenario in mind, we thought it was better to divest our holding in the two companies if we get the right kind of an investor or financial partner," said Bidaye, adding that the company will look at partial or complete divestment of stake in the two companies.
Earlier, Zicom had initiated discussions for stake divestment with a few players and made substantial progress in this direction. However, the deals didn't materialise due to the unfavourable business and economic environment in the Middle East region. "The (divestment) process is held up for the time being but we hope to restart the exercise soon," he said. Sensing a possible delay due to a non-conducive environment for investments or for merger and acquisition, the company has decided to internally restructure the company's operations to be able to present a more attractive proposition to potential buyers / financial investors. The management has reduced operational cost and has substantially brought down manpower costs. It has also started working towards tweaking the existing business model with the aim of changing the revenue contribution from its three business verticals in the Middle East region.
According to Bidaye, the portfolio of projects business in the company's overall revenues was very high at 90% while maintenance service was 8% and assembly / manufacturing business was at 2%. The plan over the next 3-4 years is to bring down the contribution from projects to less than 50%. "We will substitute a chunk of it (revenue contribution) with our fire maintenance business which will give us a very steady cash flow. We will work aggressively towards increasing the 10% revenue contribution (between maintenance and assembly / manufacturing verticals) to over 50% in the next few years," he said.
Four years from now, Zicom is expecting the service business to contribute 25% and another 25-30% coming from the manufacturing and distribution business, thus, significantly reducing its overall dependence on the projects business. The company already has 500 fire maintenance contracts in addition to maintaining the entire fire infrastructure of the Burj Khalifa, refineries and airport infrastructure in Dubai.
The company will focus to increase this number significantly over the coming years. "The idea is to bring down the projects business to 40% to be able to deal with any kind of fluctuations or challenges in the overall business / economic environment in the Middle East region," he said, adding that the company is hoping that the overall business environment may change over the next couple of years and oil prices will stabilise at attractive levels.
t_ashish@dnaindia.net
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