Steel manufacturer Mukand Ltd has filed a draft red-herring prospectus with market regulator SEBI for a rights issue. The company plans to raise up to Rs 160 crore through the issue. The shares of the company closed at Rs 23.9 on the BSE on Monday.
Utilisation of funds
Of the issue proceeds, the company plans to pay its lenders (banks and financial institutions), Rs 70 crore and deploy another Rs 75 crore towards working capital (inventory and receivables).
The company said alloy steel and machine building businesses are working capital intensive. Different grades and dimensions of specialised steel have to be kept to meet varied needs of customers. Also, the lead-time required for procuring inputs is high. Therefore, sufficient quantity of inputs in inventory has to be maintained to ensure commitments to customers are met. In these times of cut-throat competition and tight liquidity in the economy, the company is required to provide sufficient credit period to customers.
In the ordinary course of Mukand’s business, its working capital requirement is funded by banks, internal accruals and term loans.
Mukand expects an increase in its capacity utilisation in FY14 and a subsequent increase in sales. This entails an additional requirement of working capital worth Rs 562.22 crore taking the total to Rs 1,281.54 crore in FY14.
The additional requirement would be funded from the issue proceeds of Rs 75 crore, working capital facilities from banks for Rs 179 crore and through loans/internal accruals for Rs 308.22 crore.
As on date, a consortium consisting of Dena Bank, YES Bank, IDBI Bank, Bank of India, Corporation Bank, Union Bank of India and Central Bank of India has sanctioned a working capital limit of Rs 1,131 crore.
In FY14, the company expects to bring down its inventory holding days to 148 from 182, and receivables to 94 from 150 days. It also anticipates expediting payables to 64 from 115 days to ensure smooth supplies at competitive prices from vendors.
ICICI Securities is the lead manager and Karvy Computershare, the registrar to the issue.