The Hindu Business Line : Century Extrusions: Reject

INVESTORS can give this rights offer from Century Extrusions a miss. The offer is to part finance the cost of a rehabilitation scheme approved by the BIFR in 2003.

The fragmented nature of the industry, the stiff competition from peers and also players in the primary sector, and the rising input costs are the major factors that could affect growth prospects.

Century Extrusions suffered losses between 1998 and 2003 and the net worth of the company was eroded in 2001. After being declared sick, the company went into rehabilitation with theobjective of reducing its debt and improving performance. As a result of the scheme, the company has been able to scale down its debt burden by about 50 per cent.

On the operational front, Century Extrusions has been able to double its capacity utilisation to about 70 per cent in the last two years. The upturn in the industry and a buoyant demand seem to have contributed to higher volumes and price realisation during this period.

After a recent cool-off by 10-15 per cent from their historic highs, the outlook for aluminium prices appears firm in the medium term on the back of encouraging prospects for user-industries such as electricals, power, automotive, construction and consumer durables.

However, the risk element stems from the possibility of a rise in the prices of alumina, the primary metal used to make ingots; this is the basic raw material for the company. While the revenues for FY 05 grew 10 per cent, earnings dipped by 89 per cent mainly on account of a rise in the input cost.

In the event of such a price rise, secondary players such as Century Extrusions, which will have to absorb the increase, may find the going tough.

This is more so because of the fragmented nature of the industry and the weak bargaining power of the players.

Stiff competition from primary players such as Hindalco, Nalco and Malco, which have low-cost advantage and are expanding capacities, is also likely to exert pressure.

Over the years, the company followed the strategy of selling its products through dealers.

This may explain why profitability of the company took a hit, as price realisations in the trade segment are marked by a high degree of volatility compared to the end-user segment. It has, however, changed its marketing strategy by selling directly to end-users.

While this may improve realisations, the ability of the company to enter into long-term relations with customers and strengthen its order-book position is yet to be demonstrated.

Offer details: On offer are 3.5 crore shares in the ratio of 35 shares for every 12 shares held. The offer is being made at a price of Re 1 (a steep discount of 84 per cent to the market price of Rs 6).

The offer, which opened on September 15, closes on October 14. Ashika Capital and MCS are the lead manager and the registrar to the issue respectively.

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