One more area of worry is swelling of its equity base from the present Rs 14.86 crore. If all the shareholders opt for conversion (assuming the conversion price at Rs 10), the equity will bloat to Rs 29.73 crore. This will dilute the future earnings. Also, since the company is raising equity for repaying the interest cost, it will not involve any capitalexpenditure or replacement of debt. This will further compound the problem for the company.

Now, the question is why should the shareholders invest in one more share (after conversion of OCCPS) from Mangalam Cement especially when the prospects of future earnings look bleak.

14 per cent OCCPS have a face value of Rs 10. The OCCPS will be converted into equity shares of Rs 10 each at the option of investors at end of 36th, 48th and 59th month from the date of allotment.

Those who do not opt for conversion will get the redemption money at the end of 60th month from the date of allotment. The share is now trading below par at around Rs 9 against the bookvalue of Rs 29.28.

With a one-million cement manufacturing capacity, the promoter group has a stake of only 21 per cent in the company. Institutions holding in the company is high as 46 per cent and the balance is held by the public.

Mangalam Cement has a low market capitalisation of Rs 13.37 crore. Since Mangalam Cement had resorted to huge high costdebt financing for adding 6-million cement capacity in 1994-95, it has a high interest burden which is putting pressure on its margins.

With a small equity base of Rs 14.86 crore, the current market capitalisation of the company at Rs 9 a share is less than Rs 14 crore. The scrip trades at a 70 per cent discount to the net asset value of Rs 29.28. The problem however with this Rajasthan-based company is that it is deep in the red with a loss of Rs 28.74 crore in 1997-98. Net outstanding liabilities as on March 1998 stood at Rs 156 crore against a networth of only Rs 63.33 crore, thereby yielding a high debt equity of 2.47:1. The interest cost has remained very high in the past and stood at Rs 26.95 crore in 1997-98. The interest outgo was almost equivalent to the full year loss.

The management, however, has initiated efforts to revive through its Rs 14.86 crore rights issue of optionally convertible cumulative preference shares. The company through the proceeds plans to to repay part of its ICDs andoverdue interest towards financial institutions. However, since the company is not bringing down major liabilities, its interest cost will continue to be a drag on the bottomline.

The company has a total asset base of Rs 218 crore (after deducting revaluation reserves). Against this, the outstanding liabilities of the company as on March 31, 1998, stood at Rs 155 crore (which includes secured loans to the tune of Rs 129 crore and unsecured loans of Rs 25.88 crore). The issue opens on August 10 and closes on September 8.