In yet another case of a merger of group companies, Khaitan Electricals is being merged with Khaitan Tibrewala Electricals. Strangely, barely six months ago, both these companies had announced their intention to buy back upto 25 per cent of their equity capital. The firms had also fixed the price at which shares would be purchased. While Khaitan Tibrewala had planned a buyback at Rs 30, Khaitan Electricals proposed Rs 15 for the same.
The announcements had an immediate impact on the share price of the companies. Khaitan Electricals shot up from about Rs 8 during March 1998 to Rs 12 at present, while that of Khaitan Tibrewala increased from Rs 12 to reach a high of Rs 30 during April 1998. The latter currently trades at around Rs 22.
Coincidentally, the ratio of the merger at one share of Khaitan Tibrewala for every two shares of Khaitan Electricals matches the ratio of their respective buyback prices. Post-merger, Khaitan Tibrewala's equity capital will rise to Rs 7.95 crore. The merger ratio is in line with the current share prices, but seems a little unfair to the shareholders of Khaitan Electricals. Both the companies have a similar balance sheet size of about Rs 24 crore and a net worth of about Rs 16 crore. Both have a similar product portfolio, with fans and motors contributing a major portion of sales.
Here again, Khaitan Electricals' sales are higher at Rs 60.99 crore against Khaitan Tibrewala's sales of Rs 35.3 crore. Though the former's margins are lower, it has earned a higher net profit of Rs 2.25 crore compared to the latter's Rs 1.71 crore. Its net cash from operations is also higher at Rs 3.3 crore against Rs 4.1 lakh.