Birla 3m

With a 51 per cent stake, 3M has been at the helm. The acquisition of a further 25 per cent stake (which will lower the Birla group's stake to around eight per cent) will enable 3M to pass special resolutions on its own, as it will now possess a 76 per cent stake. At this stage, Birla 3M requires finance to fund its capital expenditure requirements.

Thus, equity dilution seems inevitable as funding the projects solely through debt will affect performance. An equity expansion in the form of a preferential allotment or a rights issue seems likely. This can be avoided only if 3M directly pumps in low cost debt to meet the capital expenditure plans. With Birla 3M's profitability unlikely to improve significantly this year, the current share price uptrend may not last for long.

 

The company is putting up a plant at Pune to manufacture abrasives and telecom products. It has acquired land at Pune and the cost of the project has been reported at around Rs 40-45 crore. Its gearing was low at around 0.45 times in 1996-97 but this seems to have increased as its interest burden has shot up considerably in the first half of 1997-98.

Interest outgo in the first half was Rs 1.09 crore against Rs 48 lakh in the corresponding period last year and Rs 1.07 crore for full 1996-97.It has a plant at Bangalore where it makes speciality tapes, adhesives, telecom connectors and autographics. However, these products account for only a third of its sales with the rest being imported from the parent .and sold here. n

Its average inventory holding at around 90 days necessitates substantial working capital requirements. Its margins are already depressed due to stiff competition in some of its product segments.