SRF reduces rights issue premium

NEW DELHI, December 22: SRF Ltd has scaled down the share premium for its forthcoming rights issue. The offer price will now be in the rang...

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NEW DELHI, December 22: SRF Ltd has scaled down the share premium for its forthcoming rights issue. The offer price will now be in the range of Rs 18-21 against the earlier planned price band of Rs 22-25.

This was confirmed by SRF’s managing director Ravi K Sinha. The company’s scrip is currently trading around Rs 21. "We are now waiting for Securities and Exchange Board of India (SEBI) clearance to the issue," Sinha said. The issue is slated to hit the market in February next year, he added.

Significantly, SRF’s promoters, the Arun Bharat Ram family, has given assurance of a buy-back deal which may raise their holding from the existing 17.5 per cent to 22 per cent. Currently, FIs hold 42 per cent of the company’s stake while 32 per cent is held by the public.

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SRF is also raising $30 million from an external commercial borrowing (ECB) to reduce its current interest burden. Sinha explained that the prices of SRF’s products are determined by the CIF prices, the exchange rate and the import duty. "In case of rupee depreciation, we are covered since our prices are at par with the international prices," he explained. "Most of the tyre companies are now negotiating at international prices," he added.

On the financial restructuring of the company, he said that the emphasis would be on reducing the debt:equity ratio to 1:1 from the existing 1:2.6.

"We will be following a two-pronged strategy to set our records right," Sinha said. SRF’s average interest charge is 21.5 per cent which it is plans to reduce by Rs 40 crore.

The two-pronged strategy includes proceeds from the sales of SRF’s stake in SRF Finance to GE Caps which is Rs 48 crore, Rs 50 crore rights issue, Rs 30 crore through private placement and funding through internal accruals.

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Further, the company is planning to replace its high-cost short-term rupee loan by ECB.

With the undertaking of a financial structuring, SRF is aiming for a turnaround and is expecting a profit of Rs 50 crore on a turnover of Rs 680 crore by the end of March, 1998.

Sinha pointed out that the company is doing well from an operational point of view since the capacity utilisation in its nylon cord making wing has been 95 per cent as against the rest of the industry, which has dipped to 80 per cent.

On the company’s vision for the next five years, Sinha said that the company is planning to get out of the non-core businesses.

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Significantly, SRF has already entered into a joint venture with Paris-based Eassilor for marketing its opthalmic lens. The company is planning to divest stake in the manufacturing wing.

Talks are being held and the company is confident that it will be able to hive its opthalmic lens division by the end of current fiscal. The total investment made by SRF in this business is Rs 25 crore.

The company is also on the lookout for a potential buyer for its 4,000 tonne polyester film manufacturing division in which it has made a cumulative investment of Rs 40 crore. However, given the dull conditions of the market, the company is currently not confident regarding the sale of its polyester film business, which it is planning to take up in the next financial year.