Arihant

AIL produces synthetic and grey cloth, polyester blended and texturised yarn. ACL's main products, on the other hand, include cotton, synthetic and blended yarns. As growth in the textiles segment will be driven by volumes, small capacities will prove useless and consolidation makes business sense.

AIL's turnover in 1996-97 was Rs 128.94 crore while that of ACL stood at Rs 64 crore. After combining their operations, both these companies will stand a better chance of survival. This is since the present scale of operations have not helped the company's performance. AIL registered a 66 per cent decline in net profit to Rs 88 lakh while ACL's net came down by 60 per cent to Rs 1.05 crore in 1996-97.

 

However, the combined entity's ability to raise funds is unlikely to improve compared with the present situation. ACL which has a cleaner balance sheet compared with AIL (it has numerous qualifications by its auditors), is trying to step up exports through the setting up of a 100 per cent export oriented polyester yarn unit.

However, ACL's liquidity is relatively poor as indicated by the debt-equity ratio of 1.95:1. It cannot expect any aid from AIL, whose debt equity is worse off at 2.24:1 times.

Also, AIL had planned an investment of Rs 8.5 crore in an unrelated diversification project, setting up an amusement park. With both stocks currently trading at Rs 1.25, it is doubtful if the markets will react at all to the merger news.