The company has reported a net profit of only Rs 15 lakh on net sales of Rs 43.3 crore, thanks to the interest burden of Rs 1.72 crore for the third quarter. The high-cost debt is eating into the profit margins of the company. The magnitude of the debt problem is so much that the third quarter interest cost is 11.46 times of the net profit. Also, the company is hit by a slowdown in the cable industry. Given the stiffcompetition in the cable industry, the company cannot improve its operating margins by increasing the output prices.

The current performance of Universal Cables reflects a grim picture of future performance. The company has recorded a net profit of Rs 1.96 crore for the nine-month period ended December 31, 1998 on sales of Rs 123.57 crore. The net profit of Rs 1.96 crore (for nine-months) is way below the PAT figure of Rs 4.59 crore for fiscal 1998. This is also indicated by the company's own profitability estimates for the entire period of fiscal 1999.

The company has projected a net profit of Rs 1.7 crore against a sales of Rs 175 crore for the fiscal 1999. This means the net profit could fall of 62.96 per cent for fiscal 1999, according to the company estimates. The problem of interest cost continues as this is projected to be around Rs 7 crore for fiscal 1999.

The proposed rights issue will see a fresh infusion of equity to the tune of Rs 4 crore. This may not help Universal Cables improve itsperformance as the company is using a major portion of the issue proceeds of Rs 7 crore for meeting margin money for working capital. The proposed equity dilution will lead to a jump in the paid up capital from Rs 16 crore to Rs 20 crore.

Hence, the earnings will see a sharp fall. Even on the projected PAT for 1999, the post-issue EPS will see a sharp fall from Rs 2.39 to just 85 paise. Also, the pressure on net profit margins will continue as the company is not expanding equity for replacing debt.

Universal Cables is into the manufacture and sale of all types of electrical cables, power, paper insulated PVC, rubber and LT/HT/EHT/KLPE cables, control and instrumentation cables, winding wire and flat cables for submersible pumps including fluoropolymer instrumentation cables and co-axial cables. The joint venture of ABB Power Cable, between Universal Cable and ABB, has already started commercial production in 1998.

The promoters hold 41 per cent in Universal Cables, institutions 30 per cent, NRIs 1.07per cent and the balance of 27.52 per cent is held by public. The promoters plan to subscribe additional shares in the event of a shortfall in subscription.