The Hindu Business Line : JMT Auto: Reject

SHAREHOLDERS can reject the open offer made by Bach and ChrysCapital for the shares of JMT Auto. The offer price at Rs 100 is unattractive as it is way below the market price of Rs 140. The former is at 13 times trailing 12-month per share earnings.

The company appears to have better growth prospects, as the user segment is on an uptrend in the country. Export opportunities too look promising. With steel prices cooling off, operating margins can be expected to be stable in the near term. The company is on an expansion mode, which could help it capitalise on the growth opportunities. The offer price appears unattractive, given the company's growth prospects.

The acquirer has picked up a 26.5 per cent stake in the company through preferential allotment of equity shares. The offer has been made for a further 20 per cent of the post preferential equity to fulfil regulatory obligations.

The acquirer has taken a stake in the company from an investment perspective and does not have any management control. The offer is open till January 30, 2006.

JMT Auto makes transmission components for automobiles and earthmovers. It supplies to clients such as Tata Motors, TELCON, Caterpillar and BEML. After three years of impressive revenue and profit growth, rising steel prices had put pressure on operating margins over the last two quarters.

The company recorded a modest profit growth at the operational level and a decline at the net level for the six months ended September 2005. But with steel prices cooling off, margins could stabilise in the near term.

The exports have more than tripled in FY-05 and could push up revenue growth. The company has raised resources through preferential allotment to fund capacity expansion.

The open offer is just a regulatory formality that is being complied with. In this backdrop, the open offer can be rejected.

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