Hardpressed against high interest cost, Coats Viyella India Ltd has turned to its shareholders to repay the outstanding debt. The company has bore the burnt of a huge debt burden and consequently, profitability targets for fiscal 1995 and 1996 went haywire. Moving in tandem, the company's scrip touched its 52-week low of Rs 34 after the announcement of results for the full year ended December 1996.

The rights issue, which is in the ratio of one share for every two shares held, is priced at Rs 65. The company now offers 2.4 crore shares and after the issue, the equity will bloat to 7.2 crore shares. Since the company is not going in for any expansion, earning per share will be low on an expanded equity. The offer price of Rs 65 seems to be attractive considering that the scrip currently hovers around Rs 85. But, the company's current earning per share of Rs 1.9 discounts the offer price of Rs 65 by 34.21 which is very high considering the industry price-earning multiple of 6.9. The possibility of the scrip quoting above the offer price seems to be remote, at least in the short to medium term. J & P Coats Ltd, the foreign promoter, in addition to their rights entitlement, has obtained the FIPB nod for raising its stake from 51 per cent to 74 per cent in case of an undersubscription. After running into trouble in the previous fiscal with net profit dipping to a record low Rs 9.15 crore, Coats Viyella India is now focussing on a major restructuring programme. The cost optimisation through modernisation and upgradation of its plants and retirement of outstanding debt to the tune of Rs 65 crore will improve the margins at gross level.

The fund requirement of Rs 195 crore is not appraised by any bank or financial institution. A sizeable portion of the fund requirement, i.e., 35 per cent, is going towards working capital requirements (Rs 44.9 crore), reorganisation (Rs 23 crore) and issue expense (Rs 2 crore). The balance portion is earmarked for modernisation and technological upgradation (Rs 60.1 crore) and repayment of outstanding debt (Rs 65 crore).

Of the fund requirement of Rs 195 crore, Rs 156.5 crore is coming by way of the rights issue and the balance of Rs 38.5 crore is from long-term foreign currency loan sanctioned by Deutsche Bank, Shanghai Banking Corporation and Standard Chartered Bank. The interest cost will be determined at 0.65 per cent over and above the six-month Libor rate. The loan will have to be repaid in 36 months, starting September 1997.

Engaged in a gamut of activities in the textile field, Coats Viyella has three manufacturing divisions — Coats India (which has three two thread manufacturing plants and one spinning plant in Tamilnadu, one thread manufacturing plant in Gujarat) and Madura Fabrics and Madura Industrial Textiles, both in Tamilnadu. The company will be modernising Coats India division at a cost of Rs 35.72 crore, Madura Fabrics at Rs 9.52 crore and Madura Industrial Textiles at Rs 14.88 crore.

In 1994, the company went for an expansion-cum-modernisation drive at a total cost of Rs 31.46 crore which was mainly financed through a preferential offer of Rs 48.16 crore to the foreign promoter, J&P Coats, UK and rights issue of Rs 24.07 crore. The project was completed in December 1995 against the target schedule of March-July 1995. The past performance of the company has been marked by consistent rise in sales and net profits, except for fiscals 1995 and 1996. In fact, the company had surpassed profitability targets for the fiscal 1993 and 1994 (see table). However, in the following fiscal, the company failed to meet the profitability targets. As the interest cost shot up to Rs 38.23 crore (projected interest cost at Rs 30.3 crore), the company could achieve a net profit of only Rs 9.51 crore against the projected figure of Rs 23.17 crore.

During the year 1996, although the company recorded a turnover of Rs 951.71 crore against the projected figure of Rs 835.98 crore, net profit tumbled to Rs 9.15 crore against Rs 25.17 crore on account of a 35 per cent rise in interest cost. Compared with the previous fiscal, interest cost rose 20 per cent from Rs 38.23 crore to Rs 45.68 crore. Thanks to the high interest and operating cost, gross profit (after interest) at Rs 36.5 crore fell short by 45 per cent from the targeted figure of Rs 66.5 crore. Consequently, net profit dipped to Rs 9.15 crore against the projected figure of Rs 25.17 crore, a gap of 64 per cent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.