Taneja, who was addressing the 20th annual general meeting (AGM) of the company, later told The Financial Express that the company was developing an export thrust which would help it weather the ups and downs of the domestic market.

Shareholders earlier approved a resolution to hike the company's borrowing limit to Rs 300 crore. Taneja said this was towards working capital needs and was only an enabling resolution. ISMT currently has a debt-equity ratio of 0.8:1 for long-term debt. Should the enhanced working capital limit be included, the ratio would go up to 1.2:1, a level at which it would be maintained.

The enhanced working capital would be utilised to expand capacities,director Rajiv Goel explained. He said the current capacity of 50,000 tpa would increase to 65,000 tpa over the next two years, adding that the present production is geared to value added tubes, which reduces capacity, so that the current capacity of 50,000 tpa produces about 40,000 tonnes of speciality tubes.

ISMT has targeted all incremental growth through exports which is expected to constitute 50 per cent of production over the next three years. Targets for the current year include production of 36,000 tonnes valued at Rs 200 crore with 20 per cent aimed at the export market. It is trying to break into the European, South African and south-east Asian markets, having made a breakthrough in the North American (US and Canada) markets.

The international trade for seamless tubes comprises 8 million tonnes. ISMT's target for exports during 1998-99 is 10,000 tonnes, of which it will export 4,000 tonnes by September 1998.

ISMT has received shareholder approval for its resolution to buyback its shares oncethe necessary legislation is in place. While this is another enabling resolution, Goel admitted that ISMT would retire the capital, which would push up the promoters' stake from the present level of 40 per cent. The move is aimed at displaying confidence to shareholders that the scrip is undervalued.

During 1997-98, ISMT's turnover stood at Rs 168.08 crore (Rs 164.77 crore). Despite the higher turnover, profit before tax was lower at Rs 6.17 crore (Rs 10.81 crore) while profit after tax was Rs 5.51 crore (Rs 9.06 crore). While its consumption of raw material and excise duty was lower in 1997-98, direct expenses of Rs 36.12 crore (Rs 28.93 crore), overheads of Rs 11.38 crore (Rs 9.95 crore) and interest at Rs 16.33 crore (Rs 15.67 crore) pushed profits down. It has declared a dividend of Rs 2.25 per share on a pro-rata basis on an increased capital base.

Financial services division to be hived off

ISMT is hiving off its financial services division to a holding company, the first move to clear thedecks for the company to enter into tie ups with foreign partners for its product. The new identity, Indian Seamless Enterprises Ltd, will be the holding company for group assets and the proposed merger is expected to receive shareholder approval at an extraordinary general meeting next month.

Shareholders of ISMT will receive one equity share of ISEL for every three ISMT shares of Rs 10 each held by them. ISMT has an authorised share capital of Rs 50 crore, while its issued and subscribed share capital is Rs 15.96 crore and paid-up capital Rs 15.88 crore. ISEL has an authorised share capital of Rs 50 lakh, with an issued, subscribed and paid-up share capital of Rs 2 crore.

For ISMT, manufacturer of seamless hollows and tubes, precision seamless tubes and cold rolled rings which is looking at strategic tie ups, the transfer of the FSD to ISEL would ensure complete de-linking. It would also allow the independent management and growth of businesses. Goel said the strategic alliances were unlikely to haveany equity participation by the partner.

The tieups, when they materialise, would involve the sourcing of ISMT's products for the European and North American markets, where cost of production is moving upwards rapidly, making India's lower costs of production attractive.