NCS Gayatri Sugars Ltd's Rs 6.25-crore maiden public issue does not seem to be attractive even at par. Promoters of NCS Gayatri Sugars -- T Subbarami Reddy, T Indira, N Nageswara Rao and T V Sandeep Kumar Reddy -- are now foraying into sugar manufacturing by setting up a unit in Nizamabad, Andra Pradesh, with an installed capacity of 2500 tcd for white crystal sugar.

Since the promoters hardly have any exposure to the sugar industry, risks associated with a greenfield venture cannot be ruled out. The key promoters of the company have exposure to construction field, but their track record in this business is also not impressive. Since the company is a new unit, it can sell the entire quantity of sugar in free-sale quota. However, since the government has recently decontrolled sugar prices, the company may not benefit as it has to face competition from existing well-established units. In fact, the domestic prices will now be more influenced by global sugar prices.

The silver lining to the issue is the growth in demand for sugar in the country. For fiscal 1997-98, domestic sugar consumption is likely to go up to around 14 million metric tonnes. The company can cash in on this demand growth. However, the catch lies in the fact that whether the company would be able to complete the project in time and produce quality sugar too. The company will cater to the domestic market.

Incorporated in June, 1995, NCS Gayatri Sugars has been in the process of setting up this project for the last two years. However, its plans did not materialise due to hurdles on the resource mobilisation front. The company had earlier planned a public issue of Rs 14 crore, but later reduced the issue size to Rs 6.25 crore due to poor primary market conditions. The project is already facing a cost overrun of Rs 2 crore.

During December, 1995, the Industrial Development Bank of India estimated the project cost at Rs 56 crore and has revised it to Rs 58 crore. The promoters have pumped in Rs 18.75 crore. Besides the equity portion, IDBI is advancing a term loan of Rs 20 crore and IFCI Rs 13 crore.

Post-issue, promoters' holding will be high at 75 per cent. The entire public issue of Rs 6.25 crore is being underwritten by IDBI (Rs 2 crore), IFCI (Rs 2 crore), UTI Securities Exchange (Rs 1 crore), BoB Capital Markets (Rs 1 crore) and JM Financial and Investment Consultancy (Rs 25 lakh). The issue does not have reservation for FIIs/FIs, mutual funds and banks.

The project is scheduled to commence commercial production in November 1997. As the company is yet to deploy any funds, the project will be delayed.

On a capacity utilisation of 75 per cent, 85 per cent and 95 per cent, IDBI has estimated a net profit of Rs 2.73 crore, Rs 2.2 crore and Rs 6.05 crore on a total income of Rs 26.57 crore, Rs 41.38 crore and Rs 52.81 crore respectively, for fiscals 1998, 1999 and 2000. Since the project is already facing a delay, profitability projections based on 75 per cent capacity utilisation for fiscal 1998 does not hold good.

Lead managed by JM Financial and BoB Capital Markets, the issue opens on November 21. The shares will be listed at Hyderabad and Mumbai.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.