Axles India: Below Average

Score: Below Average

Anup Menon

AXLES India made a rights offer in the ratio of three equity shares for every two held in the company.

The company offers 61.20 lakh shares at Rs 10 each and hopes to mobilise funds to the tune of Rs 6.12 crore.

The primary objective of the issue is two-fold. On the one hand, the company plans to utilise part of the funds (Rs 2 crore) to set up facilities to make axle drive heads. But a major part of the funds (Rs 4 crore) is to be used to redeem 14 per cent cumulative non-convertible redeemable preference shares, which are to be redeemed in July 2002 and 2003 respectively.

Axles India, part of the TVS group, manufactures rear axle housings for heavy and medium commercial vehicles. Given the difficulties in the heavy commercial vehicles industry, the company's performance in the recent past has not been all that impressive.

The company has accumulated losses of Rs 2.71 crore for the year-ended March 2000. Given that the preference shares are expensive, the move to redeem them is good from the equity shareholders' perspective.

The book value per share, as of March 31, 2000, is around Rs 6 (excluding preference share capital). Therefore, shareholders are expected to pay a premium over the book value to subscribe to the equity issue. Further, the current net worth of the company, including preference capital, is Rs 6.44 crore. If we remove the preference capital and add back the amount to be raised through the rights issue, the net worth should be around Rs 8.56 crore. Simultaneously, the company's debt levels also move up by around Rs 3.20 crore (additional debt to be taken for the project).

According to the offer document, the level of debt equity falls marginally from around 2.76 prior to the issue to around 2.67, post-issue. Therefore, in the event of an improvement in the fortunes of the company, a fairly substantial chunk of the company's resources would have to be used for servicing its debt.

The offer document also states that in the event of under-subscription, the promoters -- Spicer, Wheels India and Sundaram Finance -- will subscribe to the unsubscribed portion in full.

Industry Class :Automotive

Instrument Type :Equity at a price of Rs 10

Issue Size :Rs 6.12 crore

Application Amount :Rs 7

Issue Opened :January 29

Issue Closes :February 27

Lead Manager :Ind Global Financial Trust Ltd

Listing :Chennai Stock Exchange

Funds Requirement :Rs 6.12 crore

Post Issue Equity :Rs 10.20 crore

Promoters :Spicer/Sundaram Finance/ Wheels India