After his venture in paper manufacturing ran into rough weather, Rajeev Kumar, one of the main promoters of Delta Colonizers Ltd, alongwith Harshpal Singh Sawhney is making a foray into construction business. Ganesh Paper Mills, an associate concern, had been incurring losses since 1992-93 and was closed down due to unviable operation and labour problems.

Incorporated in 1991, Delta Colonizers is coming out with a Rs 3.5-crore public issue at par. The proceeds of the issue will be utilised to part finance the Rs 5.59-crore project, which is appraised by Vijaya Bank. The project involves construction and development of real estate at Sushani Lok, Gurgaon.

Apart from Rs 56 lakh as term loan from Vijaya Bank, the entire project cost is being met through equity. Besides the public issue proceeds of Rs 3.5 crore and the term loan, the project cost will be financed through promoters' contribution of Rs 1.53 crore. Post-issue, promoters' stake will stand at 30 per cent, which is too low considering that they have no exposure to the present field of activity.

The issue does not have any firm allotment nor underwritting support. The net public portion is 28 lakh shares.

According to the prospectus, the company has already tied up for construction of 45,000 su ft area in Gurgaon and has booked 22 plots in Ansals Golf Links (Greater Noida).

Construction projects are prone to delays and since the company is heavily depending on equity financing, any delay in mobilising resources may have a bearing on the profitability estimates of Vijaya Bank. The company is yet to deploy funds in the project. Not only this, although the company is a new player in the field, it is yet to enter into firm selling arrangement. Vijaya Bank is projecting a net profit of Rs 39.92 lakh and Rs 1.12 crore on income of Rs 3.44 crore and Rs 8.28 crore.

The projected book value for 1997-98 and 1998-99 is Rs 10.05 and Rs 11.5 respectively. On a low equity base of Rs 5.03 crore, earning per share works out to 79 paise and Rs 2.42, which seems to be low.

Lead managed by Prudential Capital Markets, the issue opens on May 26, 1997. The shares will be listed at Delhi and Kanpur.

Hexagon Engineers

Incorporated in 1994, the company is into project consultancy and execution of projects on turnkey basis. The company is tapping the market with a Rs 3-crore issue to part-finance its Rs 5.85-crore project.

The company's exposure to the field is limited, except for implementing pilot projects in Karnataka. In order to expand its operation in turnkey projects, the company is setting up three divisions, namely, consultancy projects and project division. The consultancy division will be engaged in offering professional consultancy in area of engineering involving mechanical, electrical and civil works. The product division will be producing mild steel and stainless steel (pressure vessels, storage tanks, reactors and heat exchangers).

City Union Bank has put the project cost at Rs 5.83 crore. Except for Rs 60 lakh as term loan from City Union Bank, the entire project cost is being met through equity route.

As the issue does not have any underwriting support, the fate of the project is tagged to the success of the issue. Besides the public issue proceeds of Rs 3 crore, promoters will be pumping in Rs 2.25 crore. However, promoters' stake after the issue will be 42.85 per cent, which seems to be low considering promoters' lack of exposure to the field.

The past performance of the company has been dismal. The company has recorded a net profit of Rs Rs 15,000, Rs 1.97 lakh and Rs 64,000 on turnover of Rs 3.48 lakh, Rs 6.28 lakh and 11.86 lakh for 1995, 1996 and six-month period of 1996-97 respectively. The equity capital of the company was Rs 4.35 lakh, Rs 44.19 lakh and 1.92 crore for the respective periods. The earning per share was very low at 35 paise and 45 paise for these respective periods.

The company expects the commercial operation to commence in June this year. The project is at a very preliminary stage of implementation. The company is yet to recruit the required manpower and is still to start deploying funds in the project. City Union Bank is projecting a net profit of Rs 2.92 crore, Rs 4.2 crore and 5.69 crore on turnover of Rs 22.22 crore, Rs 28.4 crore and 36.11 crore for 1998, 1999 and 2000 respectively. The projections seem to be optimistic considering the past performance of the company, promoters' lack of exposure to the field and a likely delay in the project. Lead managed by City Union Bank, the issue opens on May 19, 1997. The shares will be listed at Bangalore and Madras.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.