Kanthals Overtures

KIL makes electrical resistance wires, ribbon and strips and its performance has been unimpressive over the last few years.

Between 1995-96 and 1996-97, KIL's turnover inched up marginally from Rs 13.72 crore to Rs 14.13 crore but net profit dipped from Rs 0.45 crore to Rs 0.27 crore.

The company has attributed the lacklustre performance to the intense competition and cost escalation. The case is similar to that of Sandvik Asia, where the company needs to improve product quality to meet competition head on. Sandvik AB hiked its stake in Sandvik Asia citing the increase as a prerequisite for transfer of proprietary technology.

The current offer will enable Kanthal AB to take firm control over the Indian operations.

One can expect Kanthal AB to part with its technical know-how and launch value added products through KIL.

The parent has shown its willingness to support the Indian arm by extending a foreign currency loan to finance KIL's new wire drawing plant at Hosur. This expansion, aimed at meeting the requirements of the export market, will provide a natural currency hedge for KIL as its entire raw material requirement is imported.

KIL had raised Rs 3.09 crore through a rights issue at a price of Rs 25 in July 1996 to augment long term resources.

The offer price of Rs 32 will enable subscribers to get a profit of 20 per cent on the acquisition price. At a 60 per cent premium to the current price, shareholders would do well to accept the offer. Since KIL's operations will take time to reap the benefits of the expansion , shareholders can then re-enter the stock later.