Rane Group Cuts Cap Expenditure By 50 Per Cent

The city-based Rane group has cut back planned capital expenditure by half and retired high-cost foreign currency debt to survive recession.

Capex has been scaled down in all three main companies that comprise the group - Rane (Madras) Ltd, Engine Valves Ltd, and Rane Brake Linings - from the earlier projected Rs 55 crore to Rs 27.5 crore.

These form the total cuts effected last year and will continue this year as well.

Also, Rs 21.5 crore of loans were either prepaid or restructured during 1997-98 as part of the group's measures at controlling borrowing costs.

Of this, dollar denominated loans accounted for Rs 4.5 crore which have been swapped for rupee loans.

"Although the interest differential is quite high (between forex and domestic loans), the exchange risk associated with a rupee - that is steadily losing against the dollar - we decided not to hold any foreign currency loan," explained senior company officials while talking to Business Standard.

The dollar loans were availed at about 9.5 per cent, while the rupee loans are for an average of 16 per cent.

In the case of Rane Madras, the company has gone for a preferential allotment of non-convertible debentures to pay off some high-cost debt.

A total of 10 million cumulative redeemable preference shares of Rs 10 each on private placement basis, to a financial institution and bank, was made during the last fiscal. Consequently, the paid-up capital has increased to Rs 14.20 crore

Total debt-equity ratio of the three company has risen marginally from 1.02 as of March 1997 to 1.1 in March 1998.

At the end of the current year, debt is expected to be marginally higher.

According to L Ganesh, group vice chairman, while the group has seen considerable success in cutting long-term down borrowing costs and capital expenditure, it is being forced to borrow more in the short term, to meet working capital requirements.

Two specific factors contributing to the short term borrowing pressures are finished goods inventory and debtors. Customers who buy from ancillary companies extend the payment period from the normal 70 days to say 90 or 95 days, increasing cash-flow pressures.

Finished goods inventory is another major source of worry as it has gone up from the more normal 2-3 weeks inventory to 6 weeks' stock piling up.