549 Gujarat units report sick, cry for help

Recently, when Shah Alloys Limited, Gujarat’s only stainless steel producer, applied to the Board for Industrial and Financial Reconstruction (BIFR) for registration as a sick industrial unit, it brought into focus the issue of industrial sickness in the state, and the need to tackle it at an early stage.

Gujarat is the cradle of entrepreneurship and a frontrunner in the industrial resurgence of the country. Therefore, it is a little disconcerting to know that as many as 549 companies of Gujarat were registered with BIFR as on December 31, 2009. The state is second only to Maharashtra in this respect, which had 1,149 companies registered with BIFR. The accumulated losses of 549 sick companies of Gujarat were Rs17,643.73 crore.

Gujarat State Financial Corporation Ltd, Jhagadia Copper, Shree Rama Multi-Tech and Ashima Ltd are a few of the companies whose accumulated losses have crossed the mark of Rs500 crore. Most of these companies are incurring losses year after year. Except Jhagadia Copper, the losses had resulted in erosion of their entire net worth, which is the sum of paid-up capital plus free reserves of the company.

Among the companies listed on the Bombay Stock Exchange, the net worth of 18 state-based firms has been wiped out, while over 100 companies have accumulated losses on their balance sheets.

There are also some other companies whose financial position is not good. Gujarat Lease Financing Ltd and Digjam Ltd have accumulated losses in excess of Rs100 crore each. The financial position of Shah Alloys Ltd, Nova Petrochemicals and Scanpoint Geomatics too isn’t promising.  The worst financial position is of the state PSU, Gujarat State Financial Corporation Ltd, which once provided finance to RIL, Nirma, Torrent, Cadila Healthcare etc. Its accumulated losses stood at Rs1,419.20 crore and net worth was totally eroded at the end of March 2009.

The undertaking stopped advancing fresh loans in 2001, and currently is engaged in the activity of recovering dues from its borrowers and paying its lenders.   Bharuch-based Jhagadia Copper is no better. In FY 2008-09, its accumulated losses stood at Rs584 crore and losses in FY'10 was of the order of Rs212.70 crore. The company discontinued production in September 2009. Its lenders, including Gujarat Industrial Investment Corporation Ltd and Royal Bank of Scotland Plc, London, have filed winding up petition against the company in Gujarat high court.

City-based denim producer Ashima Ltd is next on the radar, with accumulated losses having surpassed the figure of Rs500 crore. However, the company is hopeful of revival. Asked if the company has approached BIFR as net worth of the company has eroded, its CMD Chintan Parikh said: “We are not supposed to approach BIFR about the company's financial position.”

In the past, companies like Shree Rama Multi-Tech, Shah Alloys Ltd, NK Industries, Gujarat Poly-AVX Electronics Ltd, Gujarat Themis Biosyn Ltd, Scanpoint Geomatics, Saurashtra Cement and Mafatlal Industries had approached BIFR.