Crucial Rights For Coats Viyella

For the year ended December 1996, while sales rose by 8 per cent to Rs 951.7 crore, profit at the net level declined from Rs 9.53 crore to Rs 9.15 crore. The 'other income' portion increased 54 per cent to Rs 17.02 crore.

The main reason for a dismal performance has been the impact of excise duties on thread apart from disruption of power supplies in the first half of the year which affected production. Operating profits increased only marginally. As a result, profit margins at the operational level declined from 9.9 per cent to 8.5 per cent.

Higher interest on increased levels of working capital demand loans apart from the abolition of packing credit in foreign currency also played a major role. On the export front, the company has done reasonably well. During 1996, exports stood at Rs 229 crore showing a jump of 16 per cent.

Although the demand scenario has not changed much and no major relief on the excise front is coming up, earnings are unlikely to go down. Tax exemption for export earnings given in the latest budget should help the company. The fall in inventory levels is also a good sign. As on December 1996, inventories stood at Rs 16.06 crore, 20 per cent lower compared to the '95 figure of Rs 19.87 crore. As the percentage of sales, inventories declined from 22.5 per cent to 16.82 per cent.

Besides, the company is also planning a rights issue in the ratio of 1:2. The money could come in handy to repay some high cost debt, and this could ease the company's interest burden. However, this may not materialise as the price of the rights issue is not very attractive.

Since the stock is presently available at Rs 63, very close to the offer price of Rs 65, shareholders may not like to exercise their rights. And the failure of the rights issue will not be good for the company.