Dead Wood

Issue size : Rs 7.20 crore

Price : Rs 10, at a premium of Rs 10

Opens on : September 26th,1996

Listing at : Ahmedabad, Delhi and Calcutta

Lead managers : SMIFS Capital Markets and IFCI

SMIFS, the lead manager is taking a stake in the company to the extent of 5 per cent of the public issue.

Andmans Timber Industries (ATI) is making a public issue to part-finance setting up of two plants to manufacture engineered wood products one at Port Blair at its existing plant and another in Kerala. ATI has already money through a rights issue for the same purpose. The fully diluted equity capital will thus jump from 2.74 crore to Rs 7.72 crore. The promoters stake will fall from 79.98 per cent to 42.67 per cent of the equity capital. About 7 per cent of the post-issue stake has come through bonus issues made when the promoter holding was in majority. SMIFS, the lead manager is taking a stake in the company to the extent of 5 per cent of the public issue. But that is hardly encouraging.

 

The asset component of the project cost is very low. Plant and machinery account for only Rs 7 crore out of the total project cost of Rs 21.70 crore. About Rs 5 crore will go in repayment of an unsecured loan and Rs 1.44 crore will go in meeting normal capital expenditure. Further, one of the projects at Port Blair is at a preliminary stage of implementation. It is yet to place orders for plant and machinery worth Rs 3.44 crore and Rs 1.07 crore worth of miscellaneous fixed assets. The company has to export 75 per cent of its production from the Kerala unit for which the company has no firm tie-up.

ATI has a poor track record. Since 1991-92 it sales turnover has dropped from Rs 40.22 crore to Rs 32.73 crore and profits have been propped up only by other income which have gone up from 3.15 crore to Rs 10.8 crore. Yet net profit after tax has gone up only from Rs 0.27 crore to Rs 0.82 crore. The prospectus says that there is more value addition in engineered wood products than existing products with an export market in developed countries. However, considering that ATI is projecting an EPS of over Rs 3 for 1996-97, this issue is grossly overpriced.