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VS Fernando
Year after year, a company keeps on churning out losses, and yet it commands a market price more than twice its face value. But when one gets to trace the lineage of the company in a `whirlpool of losses', the anomaly need not surprise many, as in the case of the New Delhi-based Whirlpool of India Ltd (WIL). The deep-pocketed Whirlpool is known internationally as a seasoned long-distance runner. But as of now, on paper, there seems to be no end to WIL's woes.
In the last four accounting periods, comprising 15-month periods ended September 1995, December 1996, March 1998 and the 9-month period ended December 1998, WIL's losses before extraordinary items amounted to Rs 33.81 crore, Rs 69.02 crore, Rs 155.90 crore and Rs 66.46 crore, respectively. The loss-making spree has evaporated the entire share premium reserves of Rs 286.48 crore by the end of 1998. In addition, the heavy burden of borrowings to fund the Rs 356-crore new frost-free refrigerator project, coupled with the fat-shedding businessreorganisation measures including two voluntary retirement schemes, have all explicably dented WIL's bottomline.
In the current year ending December 1999, too, no respite on this front is expected. Yet the WIL scrip is currently traded at a respectable Rs 24 apiece on the bourses, and that too, on an ex-rights basis. The proceeds from the 1:1 rights issue, which is being made at a marginal premium of Rs 2 per share, would go to retire a part of the existing borrowings, besides shoring up the working capital.
But at the end of the rights issue, WIL's already bloated equity base of Rs 63 crore is set to double -- a cause for worry in normal circumstances for investors. Of course, in the case of WIL, the investors have perhaps discounted all the red ink as initial hiccups. Because there is a clear method visible in shaping and consolidating WIL for the future. Its US parent, Whirlpool Corporation (WC), is definitely showing, at least for the moment, its ruthless commitment to the daunting job on hand, whichis to build invincible brand leadership and achieve business growth through high volumes of superior quality of fast-moving consumer durable products at low costs.
Since the time it got virtually a toehold into the erstwhile Kelvinator in India in 1994, WC has progressively moved its way up. In fact, at the end of over four years, WC has devoured the four-decade-old Kelvinator of India Ltd (KIL) to substitute its more famous name for Kelvinator and make it WIL. In 1994, KIL entered into just a strategic alliance with Whirlpool with the object of manufacturing and marketing state-of-the-art home appliances and simultaneously discontinuing all unrelated and non-core product lines.
In February 1995, KIL made a preferential offer of 1.41 crore equity shares to Whirlpool Mauritius Ltd (WML), a wholly-owned subsidiary of WC, USA. WML also acquired additional shares from White Consolidated Industries Inc, USA, thus increasing its equity stake in KIL to 51 per cent in the enhanced share capital of thecompany.
Subsequent to the acquisition of a majority stake by WC, the company management was reorganised with nominees of WC having a majority presence on the board of KIL. The advent of WC signaled some bold initiatives in KIL. During 1995, the company, in an effort to position itself as a volume-player with an eye on value addition, embarked upon an environmental-friendly Chloro-fluro-carbon (CFC) free No-Frost Refrigerator (NFR) project for the manufacture of 6.50 lakh units in a phased manner. This Rs 356-crore project is located at Ranjangaon near Pune in Maharashtra.
With effect from April 1996, Whirlpool Washing Machines Ltd (WWML), another subsidiary of WC engaged in the manufacture and sales of washing machines was merged with the company. In May 1996, the name of the company was changed from KIL to WIL. Thereafter, in September 1998, Whirlpool Financial India Private Ltd (WFIPL), another group company of WC and a wholly-owned subsidiary of Whirlpool Financial Mauritius Ltd (WFML) was merged withWIL.
Consequently, WFML was allotted equity shares of WIL in the ratio of 2 shares for every 9 shares of WFIPL. Thus, at last count, WC had a 82.33 per cent stake in WIL through WML (44.17 per cent) and WFML (38.15 per cent). The rest of the holding in WIL is distributed amongst public investors (12.90 per cent), financial institutions (4.12 per cent) and others (0.65 per cent).
As if the over 82 per cent firm overseas hold on equity is not enough, WIL is now armed with an approval from the Secretariat of Industrial Approvals for increasing the foreign stake further to 91.16 per cent, to cover for any undersubscription in its rights offer. Considering that the present market price of WIL scrip is well above the rights offer price, the contingent plan might not be needed at all. On the contrary, the high promoters' holding and their expression of intent in willing to up the stake further are bound to enhance investors' level of comfort in WIL.
However, given the high promoters' holding, the only pointto ponder over is whether WC, USA, would shut out public investors by opting for delisting when better times arrive. For long-term investors willing to bet that WC won't, WIL presents an attractive opportunity at its current valuation.
(Arranged by Investar -- The Aarthik News & Research Syndicate)
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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