High Gearing At Nippon Denro
With the Bailadila deal cleared, an investment of Rs 10 crore will be made in the joint venture with the NMDC.. The raising of equity for capacity expansion is also to be cleared, as well as investment in a sponge iron plant in Bahrain. The approval sought includes consent for the issue of non-voting shares and also for convertible preference shares.
Its current share capital is Rs 148.17 crore, while its authorised capital is Rs 500 crore. The authorised capital is proposed to be increased to Rs 2,000 crore.
Besides the projects mentioned above, funding for Hughes Ispat and the Central India Power Co have also to be tied up. Nippon's performance for the year to March 31, 1996, has improved, with higher capacity utilisations. Net profit has been Rs 100.53 crore as against Rs 59.50 crore for the previous nine-month period. Operating margins have improved from 14.3 per cent to 15.9 per cent.
The company has little option but to increase equity. Its net worth, after adjusting for revaluation, works out to Rs 524.45 crore, against total outside liabilities of Rs 2,616.36 crore. That is a ratio of 1:4.99, very high by any standards. Hence the attraction for hybrids such as convertible preferences. The current year will also see higher interest charges, a consequence of the increase in borrowings. Last fiscal, part of the increase was cushioned by interest received on ICDs and other investments.
These should decrease due to the money required for the new ventures and for expansion. Moreover, the company's zero-tax status will be hit by MAT.
The problem is that the company's scrip is being quoted at around Rs 19 and further dilution would mean still lower prices. Further, some of the projects in which investments are being made are joint ventures, and the gain to the parent company will consist only of dividends.
Investors are unlikely to make the same mistake which the ones who subscribed to the company's 3 per cent Eurocon-vertibles did, when they bought the issue for conversion at a price of Rs 67 per share.