The offer price of Rs 40 is just 21.89 per cent of the book value of Rs 182.66 as on March 31, 1998. The scrip is currently trading at a price-earnings multiple (based on the 1998 earnings of Rs 32.39) of 3.7. Also, the 1998 earnings discount the offer price of Rs 40 by only 1.23 times.

Besides, the rights issue is offered in the ratio of two shares for one share held in the company. Post-issue, the equity capital will swell to Rs 6.49 crore which is still low and there should not be any major earnings dilution. On the expanded capital, the earnings per share (EPS) works out to Rs 10.77 which discounts the offer price by a multiple of 3.71times. The scrip has been on a southward journey over the past 14 trading sessions from a high of Rs 218 on April 24, which was cum-rights. The stock is currently trading close to its 52-week low of Rs 115 (ex-rights).

The promoter group of Gammon India intends to subscribe to the unsubscribed portion, if any, in addition to the rights entitlement. The promoters currently hold 36 per cent in the company. Gammon India is raising funds to meet capital expenditure to the tune of Rs 7.15 crore and investment of Rs 10 crore in Gammon Infrastructure.

One of the leaders in the industry, Gammon India is currently engaged in contract execution of infrastructure and civil engineering projects. The government's thrust on infrastructure promotion and the concessions extended to the housing sector could provide more opportunities to Gammon India.

The company currently has projects worth Rs 677.08 crore which includes construction of dams and river valley projects, super thermal power stations, chimneys, bridges andcooling towers -- Ranganadi Main Tunnel, construction of aqueduct across river Deo, raising of Almatti Dam, Narmada Bridge (Chandod), Doyang Spillway, Kothagudem Cooling Tower, New Note Press building for RBI, Godavari pipeline bridge, Ranganadi diver dam, multilevel container (Donagiri), Tarali Masonary dam and Teesta Hydel Power House.

Gammon India currently has reserves and surplus of Rs 37.36 crore on an equity base of Rs 2.16 crore as on March 31, 1998. Notwithstanding a slowdown in the construction industry, for fiscal 1998 the total income increased to Rs 236.15 crore against Rs 200 crore in 1997. Profit before tax saw a sharp rise of 95 per cent to Rs 10.16 crore. Net profit (after extraordinary items) rose by 56 per cent to Rs 7 crore against Rs 4.54 crore. Lead managed by Imperial Corporate Finance and Services, the issue opens on August 4 and closes on September 2.