NEW DELHI, July 13: Maharaja International's current expansion plan may leave its shareholders in the cold. Despite a low capacity utilisation in refrigerators of 34.71 per cent, the company is enhancing its manufacturing facility by 60 per cent.

Further, the company has suspended activities at its Shahjahanpur plant which has an annual capacity of one lakh washing machines and dishwashers each. This capacity is lying idle.

A look at the balance sheet reveals that the company is potentially sick, with its accumulated losses of Rs 51 crore close to its current networth of Rs 56.9 crore. The company has been in the red since inception.

With the entry of major foreign brands, the white goods segment is getting increasingly competitive and it will be an uphill task for the beleaguered company to increase its market share in tandem with the capacity expansion.

The company now sells its refrigerators under the brands, Kelvinator and Electrolux, which are owned by AB Electrolux. At 34 per cent capacity utilisation, the company caters to 25-27 per cent of the refrigerator market in the country through its Kelvinator brand.

Although the company expects the market to grow at 19 per cent per annum, additional capacity may lead to low utilisation due to intense competition in the industry. Further, even to maintain the current market share, the company needs to aggressively market its products, entailing a huge selling expense for which no provision has been made.

At present, Maharaja International has an annual capacity of 250,000 refrigerators, which will be expanded to 400,000.

With as many as 38 risk factors to its credit, Maharaja International is offering 3.41 crore shares at par to its shareholders in the ratio of one share for every share held.

This, in turn, will double its equity from Rs 34.11 crore to Rs 68.05 crore. As the company has been in the red since incorporation, the earning per share will continue be low even if the company turns around. As the entire net worth has been wiped out and considering the not-so-rosy future of the company, investment in the company even at par is risky.

The scrip, which has seen a 52-week high/low of Rs 19/8, currently trades at Rs 10.5. AB Electrolux has obtained FIPB permission to raise its stake from 51 per cent to 74 per cent in case the rights issue does not receive 90 per cent subscription.

The company has estimated the project cost at Rs 70.66 crore, which is not appraised by any bank or financial institution. Besides the issue proceeds, the project is being financed through Rs 3.5 crore foreign currency loan from AB Electrolux, term loans of Rs 16.5 crore each from Hongkong and Shanghai Banking Corporation and Standard Chartered Bank.

The project cost includes plant and machinery worth Rs 41.94 crore, deficit from operations of Rs 10.35 crore and Rs 12.92 crore for working capital requirements.

The company is also not comfortable on the project implementation front. The project, already facing a cost overrun of over Rs 7 crore, is expected to go on stream in December 1997. Till March 31, 1997, however, the company had deployed only Rs 30.15 crore.

The company does not face any problem in sourcing technology as its parent company is one of the major players in the global house-hold appliances market.

High interest, depreciation and operational cost have affected the company's bottom line. The company incurred a loss of Rs 23.51 crore on a turnover of Rs 70.91 crore in fiscal 1996-97. With the company raising its exposure to long-term debts, it will again be saddled with high interest and depreciation cost.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.