Close on the heels of its rights issue, Shriram Transport Finance Co Ltd is coming out with a Rs 10.5-crore fully convertible debenture issue. The secured FCDs with a coupon rate of 18 per cent will be converted into equity shares in the next three years. Each debenture has a face value of Rs 50 and will be converted into equity shares of Rs 10 each three years down the line. However, the scrip currently hovering around Rs 12.5 on BSE has a 52-week high/low of only Rs 19/10. In fact, trading volumes have been very low.

First conversion will start at the end of twelve months at a price of Rs 10 at par. Whereas second and third conversions will be at a premium of Rs 10 each. Since the company had failed to meet its profitability projections, the performance of its scrip has not been impressive. Although the coupon rate of 18 per cent looks attractive in view of the falling interest rate in the market, premia to be charged at the time of conversions seem a bit high.

The secured debentures carry a rating of ``CARE AAA (SO)'', which indicates best of quality and negligible investment risk. However, timely payment of interest and principle will depend on the company's future cash flows. Future cash flow again depends on the company's financial performance.Incorporated in June 1979 and engaged in the financing of trucks, this South-based company is in the process of setting up four divisions mainly to diversify into related truck financing and un-related activities and entering into general insurance business. The four divisions, apart from its truck operations, include Semawang Shriram Integrated Logistics, Iris Development Engg Applications, Shriram Tower Tech and General Insurance. The company has estimated its fund requirements at Rs 23.5 crore which will be met through company's rights and public issue. The company plans to deploy Rs 4.03 crore in truck financing; Rs 8 crore in transportation, communication and warehousing; Rs 3 crore in designing and manufacture of components used by automotive and electronic industry and sub-assemblies; Rs 1.5 crore in the manufacture of products which find application in chemical industry and Rs 5 crore in general insurance business. On the flip side, the company is going in for too many diversifications. As the promoteres have limited exposure to general insurance and other un-related fields, the company may run the risk of losing focus. More importantly, a major portion of the funds to be raised will be deployed in the un-related business activities. The company has a very high exposure to fixed deposits. During 1995, the company had a fixed deposit base as high as Rs 75.64 crore. The company is yet to provide for contingent liabilities to the tune of Rs 42 crore.

The company has a high equity base of Rs 12.98 crore and at the end of three years, i.e, after the full conversion of debentures, the equity will treble to Rs 36.47 crore.

On an equity base of Rs 12.98 crore, EPS stood at Rs 5.91 during 1995-96. On an enlarged equity, the future earning per share will be lower. The company had projected a profit after tax of Rs 13.36 crore on a turnover of Rs 72.53 crore for 1995-96 during its rights during 1995. However, the company achieved the projected income, but it slipped on the net profit front as margins at operating level came under pressure. The company could achieve a net profit of only Rs 7.67 crore. Against a projected reserves of Rs 23.58 crore, the actual figure stood at Rs 12.61 crore. Hence, the company declared a lower dividend of Rs 25 per cent compared with the promised figure of 28 per cent. Noticeably, post-issue, promoters' stake will come down to a dismal 9.89 per cent as they are not subscribing to the issue. Floating stock will be more than 90 per cent. Although there are very few non banking finance companies who are exclusively into truck leasing, leasing business is generally crowded by so many players. The margins are also under pressure, which may have a bearing on the company's future earnings. The company is not setting any profitability targets and hence, it is difficult to assess the future earning potential.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.