Calcutta, Aug 20: The board of directors of Hindustan Motors has approved a Rs 50-crore rights issue to fund its expansion and modernisation programme. The decision was taken at a board meeting held here on Wednesday before the company's 55th annual general meeting.

Vice-chairman of the company CK Birla told reporters after the AGM that the details of the issue will be finalised in a couple of months and it will hit the market before March 31, 1998. The board is yet to take a decision on the premium and the ratio at which the shares will be offered. "We have to appoint a merchant banker first and then we will take a decision in consultation with them," he said.

According to chairman GP Birla, the idea to go in for a rights issue was first put forward by the financial institutions in order to keep the debt-equity ratio under control. The current debt-equity ratio is around 3:1. The financial institutions, led by the Industrial Development Bank of India (IDBI), has committed Rs 320 crore to the automobile manufacturing company. Another Rs 130 crore will be pumped in through internal accruals.

The HM scrip is currently trading between Rs 15 and 17 in the stock markets. Against an authorised equity base of Rs 160 crore, the paid-up capital of the company stands at Rs 107.57 crore.

HM has a three-pronged strategy to combat competition. The Ambassador is being upgraded through "a focussed quality programme". GP Birla explained some equipment in the car will be replaced in order to make it more fuel efficient and customer friendly. The automotive unit is being beefed up through the introduction of the rural transport vehicle in collaboration with OKA of Australia.

The third strategy is to invest in the earth-moving equipment and power products division. The company will be increasing its product range in this segment. Executive director A Sankaranarayanan said Hind Motors recently launched back-hoes in which Escorts is the market leader. It will soon introduce 20-tonne excavators in which Telco has the major market share.

Both these products are extensively used in the construction industry and by city municipalities.

The company's three plants in Tiruvallur, Hosur and Pondicherry manufacture earth moving equipment and HM annually spends Rs 10 to 12 crore in these units.Birla said during the first four months of the current fiscal Hind Motors reported a six per cent increase in sales revenue over the corresponding period of the previous year. The company obtained the approval of its shareholders for enhancing its borrowing limit from Rs 500 crore to Rs 1,000 crore. The shareholders also approved a dividend of 10 per cent.

During 1996-97, the company recorded a net profit of Rs 39.31 crore against a total turnover of Rs 1,291.94 crore. Out of this, other income was Rs 5.52 crore while increase in stocks was valued at Rs 33.09 crore.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.