Mcleod Russel Scrip Looks Up After Merger

In the week before last, on Friday, September 20, the counter closed at Rs 83.20. On the day the merger was announced the stock closed at Rs 80 ,but has been on a rising curve ever since. On Friday last, the counter closed at Rs 95.20.

On the NSE too, the stock has seen a similar trend and on the last day of the week it wound up at Rs 100 moving up from Rs 89.50 on the day of the merger.

The Calcutta-based tea major McLeod Russel has not been able to keep its promises to the shareholders. While the company in its prospectus had projected a net profit of Rs 34.34 crore for the year 1995-96, the profit actually achieved has been Rs 28 crore.

But in its advertisement on `promise v/s performance' in the newspapers, the company claimed that the net profit projection was Rs 22.02 crore.

The company came out with an issue of 1,42,23,500 equity shares at Rs 190 per share aggregating to Rs 270.24 crore. With the money raised it paid back the debentures but increased the loans and advances by around Rs 22 crore.

The company has witnessed a negative cash flow in the last fiscal and this problem is likely to be resolved now that the merger has taken place.

The reason for a cash crunch was the heavy interest burden. On the profits before tax of Rs 28 crore, the company has paid an interest of Rs 18 crore. Its operations can not sustain such high interest outflow. Against a PBT of Rs 28 crore, `other income' was Rs 32.64 crore.

Even as an analysis of financial ratios show that Eveready is a much stronger company than McLoed, it too has been slipping. In 1995-96 its borrowings doubled and were used up in investing in ICDs and buying up 6.7 lakh Nestle shares bought from McLeod.

Thus, while the merger with Eveready is a boon for McLeod, it could prove to be drag on Eveready. Especially when the company has already taken shareholders' permission to make either a domestic capital issue or a GDR issue of $ 75

million.