MUMBAI, January 29: The Guptas of Lloyds group have set in motion a process for the reverse merger of Lloyds Steel with Lloyds Metals. Two valuation firms have been appointed to work out the swap ratio. Their reports are expected to be tabled at Lloyds Steel's next board meeting scheduled in February.The reverse merger will be effective April 1, 1997, and the markets are looking at a swap ratio of 5:1-one share of Lloyds Metals for every five shares of Lloyds Steel. After the merger, Lloyds Metals will be renamed Lloyds Steel. At this ratio, the financial profile of the merged entity will look a lot healthier with a manageable equity base of around Rs 45-50 crore, reserves of Rs 850 crore and a turnover adding up to Rs 1,500 crore. So what is in store for the shareholders of Lloyds Steel?
According to Aarthik Research, "In the last 10 years and more, the group has raised as much as Rs 643 crore by way of equity (including share premium), which is worth only Rs 118 crore today, a loss of 82 per cent or Rs525 crore." At the bourses the scrips have taken a beating. The 52-week high/low of Lloyds Steel is Rs 14/Rs 3 while that of Lloyds Metals is Rs 45/Rs 12. Some analysts feel that the reverse merger is being done as the promoter holding is high in Lloyds Metals at 33 per cent while it is around 22 per cent in Lloyds Steel. The Rs 1,800-crore Lloyds group's business has been floundering for several reasons which include unrelated diversification (real estate, pharma), rising operational costs and cost over-runs on projects.
All these have resulted in net profits of both the companies plunging heavily and companies going off the dividend list last year. Lloyds Steel has slipped into the red in the first six months ended September 1997. On a turnover of Rs 498.63 crore, it has a reported a net loss of Rs 66.80 crore. On the other hand, Lloyds Metals has reported a net profit of Rs 0.25 crore on a turnover of Rs 114.48 crore during the same period.
According to analysts, the biggest culprit is high debt, bothsecured and unsecured, of around Rs 1,238 crore. As on March 1997, the interest outgo of both these companies stood at Rs 161 crore.
The company has already embarked on a restructuring and rationalisation drive. For starters, various departments of both companies have been integrated with finance, purchases, exports and marketing being centralised. This step could see the reduction of the workforce from 3,600 employees to 2,600 over a period of time. Besides reducing the overhead cost, the group has already started process improvements with a view to reducing overall production costs. By these measures, the company hopes to effect a savings of Rs 70 crore per annum.
Company sources are hopeful that after the merger net profits will rise to Rs 50 crore in 1998-99 on a turnover of Rs 1,500 crore. The profits could double to Rs 100 crore by 1999-2000.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
