Dunlop Incurs Rs 19cr Loss On Working Capital Crunch

Dunlop India Ltd, the Rs 600 crore tyre major, recorded a loss for the first time during the first half of the current financial year, owing to massive working capital shortage.

The company recorded a Rs 19.20 crore net loss during the first half of the current fiscal 1997-98 on a paid-up equity share capital of Rs 18.99 crore. The net loss indicates a 3.67 per cent drop in profits over Rs 18.52 crore net profit in the corresponding period last year. Unaudited financial results of the company were taken into account by the board of directors at a meeting held in Mumbai on November 22.

 

Losses incurred by the company do not come as a surprise for most corporate watchers as the company was undergoing severe working capital crunch due to non-availability of requisite bank finance currently pegged at Rs 38 crore. This is grossly inadequate to support an annual business of over Rs 600 crore.

However, the management is optimistic about the future as it hopes to raise funds to the tune of US $ 25 million through external commercial borrowings which have already been cleared by the ministry of finance. On the other hand, the board of directors has also cleared the companys plans for a rights issue amounting to Rs 66.5 crore in the ratio of 1:1 at a premium of Rs 25 per share.

Besides, consequential under-utilisation of capacity at less than 25 per cent and resultant under-absorption of overheads also affected the companys bottomline. During the first half of the fiscal 1997-98, the company posted a 49.87 per cent drop in its net sales and other incomes of Rs 168.60 crore against Rs 336.37 crore in the corresponding period during 1996-97.

Total expenditure during the period stood at Rs 174.36 crore compared to Rs 299.74 crore in the same period, while interest outgo was pegged at Rs 10.58 crore as against Rs 12.27 crore.

Gross loss after interest, but before depreciation and taxation, was Rs 16.34 crore in the first half of the current financial year against a gross profit of Rs 24.36 crore in the corresponding period last fiscal. The company has provided for a sum of Rs 2.86 crore (Rs 3.09 crore) as depreciation.

To tide over the working capital shortage, the company has been exploring several options including leveraging properties against collaterals, raising funds through external commercial borrowing route, and enter capital market with a rights issue.