Reliance planning to get out of Deccan 360 investment

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Reliance plans to sell stake at Deccan 360
Deccan 360 hits air-pocket turbulence as its planes were taken bank by the leasing company for non-payments and Reliance Industries has said to the Deccan 360 management that it will not be investing any more in the company.

Over the past decade, G R Gopinath founder of Deccan 360, had changed the functioning of Indian civil aviation industry. He founded the the first low-cost airline in the country, Deccan Aviation and then sold it to Kingfisher Airlines.

Then he started out with Deccan 360 in 2009 with the aim of being the first low-cost cargo company. Since the start of the company, Gopinath has invested in Rs 75 crore. And RIL picked up a strategic stake in the company with Rs 115 crore infusion. The company raised a debt of Rs 500 crore.

Mindtree, the Bangalore based company manages the software development for it. Deccan 360 does not own any aircraft but has has leased three Airbus 310, each with capacity of 38 ton capacity from Veling. It has also taken five ATRs from the Veling.

The Airbus was used for transportation of cargo between the metro and major cities, while the ATRs were used for cargo transportation to smaller towns. This was supported with 1,000 vehicles, also the company had 300 people on its rolls and an additional staff of 1,500.

According to reports in certain section of the media, Veling has taken back its Airbus for non-payment of dues, which led to the grounding of entire operations. Although the company, Deccan 360, claims that they were returned for maintenance and lack of usage.

In the aviation industry the biggest loss of reputation is to lose an air-craft due to non-payment. It will likely lead to serious devaluation of the business' worth.

On the other hand there are also reports stating that RIL is reviewing its business with Deccan 360. Another major negative news for the company.

The reports states that Reliance Industries is looking for suitors to dilute its stake in Deccan 360.The investment in Deccan 360 was done to boost the supply chain and logistics operation for its retail business.

Deccan 360 will trim staff to reduce costs by 40%, it plans to restart operations with two ATRs of 7.5-8 tonne capacity on the domestic route. And reports indicate that Gopinath plans to raise nearly 200 crore which will allow Reliance to exit and leave the company with some cash for equity infusion.

But with reports stating that RIL is looking for an exit may make it tough for Gopinath to raise the required capital.

Gopinath's execution problem is clear from its result where in top line of Rs 180 crore for the FY11, the company has lost nearly Rs 120 crore.

The reasons being cited for this performance is lack of large customers, who would bring in revenues of Rs 20-30 crore each annually. Rather the company has so far been relying on 2,000 small businesses, which do not have yield and neither are they consistent.

Analysts' have stated that Gopinath's business plan for his cargo venture was good. It aimed to fill the latent gap for efficient logistics network.

But somewhere the execution did not match to the vision that Gopinath had according to industry watchers.

OneIndia Money

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