NEW DELHI, April 29: It's been a windfall for LKP Merchant Financing investors. The scrip, which was quoting at Rs 2 on the Mumbai Stock Exchange until a month ago, has zoomed by an amazing 850 per cent to Rs 19. Daily trading volumes, too, have risen to over 10,000 shares from around 100-200 shares earlier. What is even more amazing is that the scrip had been trading below par for the past two years. The mystery deepens when one looks at the first-half results -- the net loss is Rs 56 lakh compared with Rs 38 lakh for the corresponding period last year.What has prompted this sudden buying interest in the scrip? Why is the market suddenly revaluing LKP Merchant Financing? The answer could be that the recent bull-run has given LKP Merchant Financing an opportunity to exit from some stocks in its portfolio. The company had a large stock of shares and debentures mainly on account of underwriting, devolvement and bought out deals.
According to the 1997 annual report, "Owing to the depressed market conditionsthe company does not consider it desirable to sell these investments and will retain them until the market revives." The August 1997 bull-run was restricted to the Group A stocks and, hence, did not provide an exit opportunity for LKP Merchant Financing.
The 1998 bull-run, on the contrary, has percolated down to mid and small cap companies and has provided LKP Merchant Financing the opportunity to offload these stocks and book profits. Says a senior company official, "The current bull run has been excellent for us." He, however, refused to comment on how much of its portfolio LKP Merchant Financing has sold and at what price.
Nevertheless, he maintained that the company could not have wished for better times. The official added that the company is on the turnaround path and may post an operating profit this year. "However, we may incure a net loss as we still have to write off 50 per cent of our bad debts. So, the real profits will accrue only in fiscal 1998-99," he added. For the year-ended March 1997,LKP Merchant Financing had a net loss of Rs 4.89 crore on an operating income of Rs 17.18 crore mainly on account of a high interest cost of Rs 12.52 crore and the sluggishness in the financial services sector.
The company has embarked on a restructuring exercise to bring down its debt burden. For the first-half ended September 1997, interest cost has come down to Rs 3.96 crore from Rs 5 crore in the corresponding period last year.
At present, the company is focusing on its full-fledged money changing business. The necessary infrastructure has been developed with the opening of twelve branches all over the country.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
