The Hindu Business Line : Lux Hosiery Industries: Reject

INVESTORS need not consider participating in the capital offer of Lux Hosiery Industries, which markets a range of undergarments under the Lux brand name.

At a price of Rs 50 per share (face value of Rs 10), the pricing of the offer is steep and does not appear to be in line with the company's earnings potential.

The issue proceeds would be used to meet the working capital requirements of the company. However, debtor's outstanding, estimated at Rs 10.8 crore for FY04 (up from Rs 3.9 crore in FY03), can be justified only if there is a concomitant jump in topline.

The company operates in a product category where it would be fighting for shelf space with unorganised sector. Price competition will ensure that margins are under check and a two/three-fold jump in topline in the near-term appears unlikely.

Imports are a threat that the company has to contend with. The anti-dumping dutieswill last only till 2005, when India, as part of WTO obligations, would have to lower import barriers.

If cheap imports flood the market, it could have serious implications for the company's profitability.

The company's performance in the just-concluded financial year is also not impressive. Sales remained flat at Rs 16.5 crore; net profit declined sharply to about Rs 24 lakh compared to Rs 61.8 lakh in year-ended March 2002.

Post public issue, the company would be listed on the Calcutta and Ahmedabad stock exchanges, which do not offer investors the comfort of trading and liquidity that a listing on the BSE or the NSE would.

Taking into account these factors, investments in this capital offer may be skipped.

The offer, which is for the issue of 20-lakh shares, opens on Monday, September 15, and will close not later than Tuesday, September 23. Karvy Investor Services and UCO Bank are the lead managers to the issue.

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