New Delhi, Aug 10: Sanjay Dalmia group company OCL India has been rising on the bourses. In the last one week, the stock has appreciated by 42 per cent to a 52-week high of Rs 88. Reason: The company's decision to buyback the warrants issued to the shareholders at the time of the zero-coupon convertible debenture float in 1996. However, contrary to popular perception, the buyback will not improve OCL's valuations and, hence, does not warrant the spurt in scrip price. What is driving the stock northwards, on the other hand, is the expectation of an attractive buyback price. And, with a good reserves position, the company is in a position to pay a good price. On a low equity of Rs 7.18 core, OCL's reserves stand at over Rs 180 crore.The 1996 rights issue in the ratio of 1:3 entitled the allottees of the zero coupon convertible debentures (ZCCDs) to one tradable warrant to be converted into one equity share between December 1999 and December 2000.
The price was fixed at a 25 per cent discount to the average closing price of the stock on BSE subject to a maximum of Rs 140 (to be paid at the time of conversion). However, the company has now decided to buyback the warrants and plans to place the issue before its shareholders at the next annual general meeting. According to marketmen, the sudden buying interest in the OCL counter is in anticipation of an attractive buyback price; at a premium to the current market price.
Over the past few days, the OCL counter has been witnessing good volumes of over 4000 shares compared with less than 500-600 shares earlier. Brokers are of the opinion that the buyback could be in the region of Rs 90-100 per warrant. As these warrants would be extinguished after the buyback process is completed, OCL's equity base will be maintained at Rs 7.18 crore. This means that the valuations will remain the same. If at all, the buyback of the warrants can be viewed as a reduction in the level of the prospective expansion of the equity base at a future date. The fact that the equity will remain the same means that the earnings will not get diluted.
At FY 1999's net profit of Rs 3.83 crore, the earning per share works out to Rs 5.33, which gives a discounting of 16.5 (in line with with the industry average). The attractive discounting, however, may not be justified by cement scenario in eastern India. According to a recent Ficci survey, the eastern region continues to show signs of sluggishness.
``The increase in prices has lagged behind the WPI increase and may not have compensated manufacturers fully for the increase in input prices,'' it added. The economic recession has taken a toll of the company. Apart from the poor realisations of its cement division, its refractories division has been hit by the slowdown in the steel industry.
In the past, the refractory division bailed out the company whenever things were not comfortable in the cement division. However, with the steel sector facing rough weather for the past two years (with no improvement in sight), the refractories division has seen a huge inventory pile up.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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