Scrip Rise Helps Nahar Spg

Nahar entered the capital market in January 1996, with an issue of 3,422,425 zero-interest secured premium convertible bonds of Rs 250 aggregating Rs 85.56 crore, along with one warrant attached to every bond on a rights basis. The allotments were made on March 23, 1996.

The bondholders have an option to convert the bond into one equity share of Rs 10 after one year from the date of allotment. The conversion price would be at 30 per cent discount to the average of weekly highs and lows of the share price at NSE in the preceding three months or Rs 250, whichever is lower.

 

In the case of the conversion price being lower than Rs 250, investors would get the difference of Rs 250 and the conversion price.

Under the second option, the bond will be converted into two equity shares of Rs 10 at a price based on the above formula after six years. But this option looks too long term.

Incidentally, the stock price of Nahar Spinning has started moving from the first week of December 1996 (the ninth month). From Rs 125 on December 4, the stock touched a high of Rs 269 on January 16.

Volumes, too, have risen substantially from average weekly trading of 5,000 shares in November to 25,000 shares a week recently.

This price rise seems quite unjustified, at least, after seeing the recent results. The performance for the nine-month period ended December 1996 is far from impressive. Despite lower cotton prices, net profit has shown only a 9 per cent jump at Rs 33.21 crore.

In fact, if the company had not shown a higher other income and had provided for MAT, then the net profit would have been much lower than the previous corresponding period.

Nahars turnover grew 39 per cent to Rs 161.9 crore with other income also showing an increase of 38 per cent.

The expenditure has shown a jump of 44 per cent much higher growth compared with sales. The implementation of the first and second phase of the spinning projects have also resulted in higher depreciation provision, which increased by 55 per cent.

If the stock price had not risen so dramatically to reach the magic number of Rs 250, then the conversion price would have been much lower, and Nahar Spinning would have seen a cash outflow.