Bayers Bargain Buy

The company is to receive almost 31 per cent of ABSs equity via a preferential equity allotment. The preferential issue of 55.80 lakh equity shares is expected to be made at a price of Rs 70 per share. Bayer is prepared to mop up the remainder of its requirement via an open offer.

Does ABS Industries merit the offer price? It certainly does. Consider this - the offer price of Rs 70 implies a prospective PE multiple of 7, which is quite low for a company with a dominant 63 per cent market share in acrylonitrile butadine styrene (ABS) polymers. In 1995-96, turnover was Rs 114.17 crore, up 44 per cent compared with the previous year. Operating profits also increased from Rs 21.91 crore to Rs 26.77 crore, although increasing raw material costs put a squeeze on the margins at the operational level. Net profit at Rs 16.57 crore, also witnessed a 37.51 per cent increase compared to Rs 12.05 crore last year. In line with the strong earnings growth, earnings per share also increased from Rs 10.4 to Rs 13.81.

 

And, as at end-June 1995, ABS had a net worth of Rs 45.37 crore and borrowings of a mere Rs 45.35 crore, making it substantially under-leveraged.

The company