The only hitch is the rights ratio of 4:25 which could lead to a problem of odd-lots. To the extent that a shareholder currently holding 100 shares of the company, will get another 16 shares after the rights are exercised.

According to the offer document submitted to Sebi, Abbott Labs hopes to post a net profit of Rs 17 lakh on a turnover of Rs 87.29 crore for the full-year 1998-99. In the nine-months ended December 1998, Abbot Labs earned a profit of Rs 2.24 crore and with a good fourth-quarter, thecompany expects to be out of the red soon. Although the amortised VRS liability will continue to impact the bottomline, the company is hopeful of ending the year with a marginal net profit.

The growth in profits will come from better management of working capital, better planning in materials management and an all-round improvement in manufacturing yield and efficiency. For the future, a lower interest burden, thanks to the repayment of rupee and foreign currency loans as well as introduction of new products in the pharmaceuticals, nutritional and hospital segments, will boost profit growth.

The Rs 22.50 crore rights issue will augment the manufacturing facilities of life saving drugs and expand/modernise manufacturing facilities of essential pharmaceutical formulations. Plus, part of the proceeds will be issued to revamp the capital structure of the company by reducing certain existing borrowings. The short-term foreign currency loan of $ 1.5 million from Abbott Finance, BV, due for bullet repayment in2000 will be now be repaid prior to the maturity date without any penalty.

The company also plans to pre-pay a term loan from Societe Generale to the tune of Rs 4.9 crore and working capital borrowings amounting to Rs 5.78 crore. Apart from the advantage of lower interest cost, the revamped capital structure will provide Abbott Labs the flexibility to efficiently utilise its future cash flows for business development.

Abbott Labs manufactures both bulk drugs and formulations. Exports account for more than 21 per cent of the total turnover. However, the company is heavily dependent on imports for its key raw materials and is, therefore, subject to foreign exchange fluctuations. The US parent, Abbott Labs, USA, holds 51 per cent stake in the company, followed by UTI and LIC at 10.37 per cent. The public shareholding is low at 13.8 per cent. The US company has stated its intention to pick up additional rights entitlement and has received the finance ministry's approval to hike its stake to 75 percent.

However, in view of the attractive price, many renunciations are unlikely.