Padmini Polymers

For the year ended June 1996, the company could achieve an operating profit of Rs 41.25 crore, only 53 per cent of the projected figure of Rs 76.58 crore.

Turnover, however, showed an improvement. As against the projected sales of Rs 350 crore, the company has achieved a turnover of Rs 383.68 crore, registering an 83 per cent jump over the previous years figure.

According to company sources, it failed to achieve profitability projections mainly due to a sharp increase in the raw material prices. Though exports increased by 86 per cent to around Rs 105 crore, profit margins even on the export front took a sharp dip. Both these reasons combined to drive profit margins down.

Similarly, as against the projected net profit of Rs 45.93 crore, the company could achieve only Rs 30.51 crore, falling short by a huge margin of Rs 15.42 crore.

This gap would have been much higher had the company made provisions for depreciation as per the projections. According to the prospectus of the public issue, Padmini was supposed to make a depreciation provision of Rs 11 crore for the year ending June 1996. However, the company has provided for only Rs 2.75 crore.

This could mean that new projects may have got delayed. But the company claims that all the projects commenced as per the schedule in July 1995.

If this to be believed, there should be a depreciation effect. As per the prospectus, the company was to add plant & machinery worth Rs 68.18 crore and building worth Rs 12 crore. The company has been using the straight line method (SLM) of depreciation.

As such, even if one were to take a depreciation rate of 4.75 per cent (single shift and not a continuous process plant), the depreciation works out to Rs 3.23 crore alone on plant & machinery.

According to the public issue prospectus, the company was to operate in three shifts. And on this basis the depreciation only on P&M works out to Rs 7.04 crore.

Does this mean that the company has not added the proposed amount of fixed assets?

The market seems to have already discounted these factors. At Rs 55, the stock has poor discounting of 3.5. Since its public issue at Rs 190 in March 1995, the stock has never looked up.

TIP-OFF

Planning to punt in the Bombay Stock Exchange? Well, the exchange has some tips to offer the wet-behind-the-ears investor:

nDeal only with registered brokers. nInsist on a contract note for the executed order within 24 hours of the trade. It should give a break up of the rate at which transaction is executed along with brokerage and the net rate. The Securities and Exchange Board of India registration number of the broker.should be shown too. nIn case of sale hand over the shares with a valid transfer deed within 24 hours on receipt of the contract to the broker concerned. Ask for an acknowledgement for the securities handed over. nThe broker should pay you or deliver the securities purchased within two working days of payout.nPay within 24 hours of the purchase by a crossed cheque or pay order to the broker directly. nIf you want to keep the shares blank, keep a track of the book closure/record date of the company whose shares have been purchased. nWhile transferring the shares in your name ensure that the transfer deed is duly signed. Return it to the broker if he is offering services for lodging the documents with the company or registrars and share transfer agents for registering the transfer in your name. However, the broker will not be responsible for any loss, pilferage in transit. nIf you have not got the shares certificates duly transferred within 60 days, contact the company giving proof of despatch of shares. nOn loss or pilferage or misplacement of shares, inform the stock exchange. Also file a FIR with the nearest police station and obtain a stay order from a competent court. nIf the transfer deed signed by you is returned by the company due to signature mismatch, you can sign afresh on the old transfer deed along with attestation or in a fresh transfer deed.