The rights issue consists of -- 16 per cent 53,74,621 fully convertible debentures of Rs 100 each at par, in the ratio of one FCD for every twenty equity shares convertible after 17-1/2 months or 5,37,46,210 equity shares of Rs 10 each at par, in the ratio of one equity share for every two held by the shareholders. The shareholders can exercise any one of the two options but not both.

The HM scrip was hovering around Rs 9.50 on the Calcutta Stock Exchange as on September 16.

The financial institutions have a combined stake of 17.52 per cent in HM. According to company officials, Industrial Credit & Investment Corp, Industrial Development Bank of India, Unit Trust of India and ICICI Securities & Finance Co, are standby underwriters to the rights issue. These FIs haveunderwritten Rs 30.56 crore, the amount expected to be mopped up from the public.

The Credit Rating Information Services of India Ltd has assigned 'A' rating to the proposed FCD issue.

According to a company press release, HM expects a profit of Rs 34.25 crore for the year to March 31, 1999, against Rs 39.36 crore in 1997-98. The projected sales turnover for the year to March 31, 1999, is Rs 1937 crore against a sales turnover of Rs 1299 crore in the previous year.

HM posted a net loss of Rs 3.08 crore for the first three months to June 30, 1998. However, the company declined to reveal the estimated figures for the first six months to September 30, 1998, citing regulations that prevent it from doing so.

The co-lead managers to the issue are ICICI Securities & Finance Co Ltd and Kotak Mahindra Capital Co.

The rights issue is part of the Rs 503.22 crore modernisation- cum- expansion plans. Apart from the Rs 53.74 crore rights issue, the means of financing include Rs 320 crore from banks and FIs ofwhich the company has already availed Rs 191.30 crore, Rs 83.22 crore through internal accruals and Rs 46.26 crore by way of a preference issue. The preference issue, according to executive director A Shankarnarayan, will be at a future date.

The investment programme include Rs 298 crore for the Lancer manufacturing unit at Chenni, Rs 37.07 crore for the RTV project at Pithampur in Madhya Pradesh, Rs 50.76 crore towards modernisation of the Uttarpara factory in West Bengal, Rs 42.70 crore towards the earthmoving equipment division and Rs 18.95 crore for the power products division.

According to company officials, 40 per cent of the turnover is from the earthmoving and power products division while the rest is from the automobile business.

HM has adopted a different approach for marketing each of its products -- Lancer in the metros and 25 cities, Ambassador and Contessa in the metros, 25 cities and 5000 district headquarters, Trekkers in the 5000 district heradquarters and 5 lakh villages and RTVs onlyin the villages.

The Lancer placed in the premium passenger car segment, is priced at Rs 8.32 lakh, (ex-showroom) in New Delhi and it costs Rs 9.32 lakh for the diesel version.

According to the offer letter, the estimated sales of Trekkers in 1997-98 are 3,500. The Trekker comes fourth after after the pack leader Commander from Mahindra & Mahindra, Tata 407, and Tempo Trax.

INSIGHT

Although the rights issue will help in tying up its financial requirements for its projects, it is hardly going to do any good for the stock. The stock is already suffering from an equity overhang due to a huge equity base of Rs 107.57 crore, which has severely hampered the stock's discounting. The scrip is already reeling under the effects of the diminishing prospects of the company's main product - the ubiquitous Ambassador and the modernisation drive for this vehicle, which could well prove to be an exercise in futility.

Besides the Lancer and rural transport vehicles project, a large chunk of the proceeds fromthe rights issue are going towards modernising and expanding existing capacities. The logic of which is hard to understand given that even the current capacities at HM are not being fully utilised. The HM's stock currently trading at Rs 9.25 (which is precariously close to its fifty two week low of Rs 8), seems well set for a prolonged spell in the wilderness.