The increase in equity will definitely result in an erosion of the earnings per share, which dropped from Rs 6.34 in 1994-95 to Rs 4.58 in 1995-96. One important factor that Voltas would have to consider is the pricing of the issue. Company sources state that while the offering is most likely to be priced at a premium, newspaper reports that suggest a premium of Rs 90 are inaccurate. With waning investor interest in the stock, the fact remains that the timing of the issue and the market sentiment would have a large bearing on the pricing.
For the year-ended March 1996, the company posted a negative earnings growth with profits dipping 27.75 per cent to Rs 15.70 crore. This has been despite a 19 per cent growth in total revenues, which were up from Rs 1211.55 crore last year to Rs 1445.03 crore.
Increasing interest costs have been the main bogey of the company. Higher utilisation of working capital limits, coupled with short-term loans for financing capacity expansions have resulted in interest costs bloating 29.6 per cent to Rs 31.26 crore.
In line with the negative earnings growth, margins at the net level dipped from 1.8 per cent to 1.09 per cent. This prompted the consumer durables major to cut the dividend outgo from 35 per cent to 25 per cent.
In stark contrast to the drop in profitability has been the improvement in revenues. Company sources attribute this to improved contributions by all the three core divisions of the company, led by the highly visible consumer durables group. But a disproportionate increase of 20.07 per cent in total expenditure has resulted in margins at the operational level dipping from 5.2 per cent to 4.6 per cent.
However, the reorganisation programme has given an optimistic outlook about the future. Company sources expect the product launches of the new office furniture range, the frost-free refrigerator, the collaboration with Hitachi and the new range of energy efficient air-conditioning equipment to boost revenues in 1996-97.