The process of acquiring the largest capacity has also turned it into a highly leveraged one. This year alone, Spentex has raised Rs 360 crore in term loans and Rs 200 crore in equity. In August, it raised Rs 46.6 crore from the first-ever qualified institutional placement (QIP) in India.
Investors were hopeful that the acquisition spree would drive their investment in Spentex to appreciate sharply in the currently bullish market. Indeed, the news of the Tashkent acquisition had driven Spentex scrip up to almost Rs 73 from the early August level of about Rs 50. But by first week of December, the scrip had fallen back to below Rs 60.
Such indifferent performance is attributed to the sluggish bottomline of the company. “Spentex is growing rapidly but its distributable profits are still not there because of almost Rs 500 crore worth of debt,” points out Sangeeta Tripathi, analyst, Anand Rathi Securities. During the first half of FY07, Spentex’s consolidated net profit was only Rs 0.83 crore, although its operating profit was Rs 39.71 crore. Interest cost for the period was Rs 18 crore, while depreciation write-offs accounted for Rs 13.75 crore of the operating profit. However, once the acquired units start producing at full tilt, interest cost will get spread over a much larger revenue and money will begin to follow through to the investors and the stock will get re-rated then, says Tripathi.
Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.