The share price of Trafalgar House Construction has recorded a smart jump of 20 per cent in the last seven trading sessions, moving up from Rs 205 to Rs 248 during this period. The reason for this is not far to seek. The parent company, Kvaerner Group of the UK, is reported to have increased its stake in the company from 51 per cent to 65 per cent.The increase in the equity stake by the parent company is a positive factor for the company's stock. But, as far as shareholders are concerned, the moot question is whether the uptrend will continue and what are the long-term prospects? As far as the financials are concerned, the recent financial performance has been far from impressive which is in line with a general slowdown in infrastructure development. For the nine months ended September 1997, the company reported a net loss of Rs 0.17 crore. Had the company not added back some excess tax provision, the net losses would have been much higher.
Although funds generated through the recent rights issue and astrong backing from the parent company will help Trafalgar solve its short-term financial problems, the fact is that the company has received very few or almost no new projects in the recent past, which makes it difficult to expect a spectacular performance from the company. The parent company has also received the Foreign Investment Promotion Board (FIPB) approval to increase its stake up to 74 per cent in the company. If the hike takes place, liquidity would further ease in the counter. However, the absence of volumes in the scrip is a major disadvantage for the investors. While the scrip jumped by 20 per cent in the recent past, increase in volumes has been far from impressive. The daily average volume moved up from 1,000 shares to 2,000 shares. As such, even if the company delivers a good performance which would see investors hike their holding in the company, what will become difficult is exiting from the stock at the required price. This factor also restricts the entry of big players like foreigninstitutional investors (FIIs) who play a crucial role for growth stocks. The chances of increasing liquidity on account of the recent rights issue are also dismal.
Pre-rights, on an equity capital of Rs 2.56 crore, the public holding was around 38 per cent. In other words, the holding with the public was close to one million shares. The holding, along with the latest rights (four shares for every five shares held), should have gone upto 1.7 million shares. However, as only 30 per cent of the public portion is reported to have been subscribed to, the post-issue holding with the public would be only 1.3 million shares, which is limited by any standard.
Copyright(c)1998 Indian Express Newspapers (Bombay) Ltd.
