Spindle capacity to go up by 25 per cent

G. Gurumurthy

Coimbatore, March 17

Precot Mills Ltd has finalised the share swap ratio for the merger of Meridian Industries, one of the unlisted group companies, with Precot Mills.

As per the ratio fixed, the shareholders of Meridian Industries will get one share of the Precot Mills for every two shares they hold.

The valuation and swap formula were decided based on the independent valuation done by Deloitte Haskins and Sells and the same was cleared by the board of directors of the Precot Mills here, the Director, Operations, Precot Mills, Mr Ashwin Chandran, said.

The merger of the two companies will lift up the manufacturing capacity as well as the financials of the merged entity considering the existing profitabilities of both the companies. The present share capital of Precot and Meridian stands at Rs 5.45 crore and Rs 3 crore respectively and the share capital of the merged entity as per the ratio accepted will go up to Rs 6.95 crore.

Post-merger, the new corporate entity to be named Precot Meridian Ltd will have its spindle capacity going up by 25 per cent to 1.60 lakh spindles (from the present Precot's 1.26 lakh spindles) and the revenues to rise by 40 per cent from the expected Rs 270 crore for 2005-06 to Rs 370 crore in 2006-07. The operating margins of Precot and Meridian before tax as of now works out to 14.5 per cent and 19.2 per cent respectively.

"The merger will synergise both the companies Precot rediscovering reasonable rise in asset values to be brought in by Meridian and Meridian overcoming the difficulty in accessing funds needed for further expansion in view of its low equity base," said Mr Ashwin.

"The merger will synergise both the companies Precot rediscovering reasonable rise in asset values to be brought in by Meridian through the advantage of a lower per spindle investment of Rs 11,000 as against the present day market price of Rs 20,000 and Meridian overcoming the difficulty in accessing funds needed for further expansion in view of its low equity base," said Mr AshwinThe Precot director told

Business Line

that though the legal process of merger of the two entities necessitated by the statutory approvals including the one from the court is expected to be completed before September, the actual merger will be effective April 1, 2006. Subject to these approvals, the company is expected to hold the EGM to seek shareholders approval for the merger sometime in June.Consequent to the merger move, the capacity expansion plans to be carried out under the two companies as well as the capital expenditures mooted would undergo changes. The merged entity, Precot Meridian Ltd, will take up these expansion plans at a revised capital outlay of Rs 140 crore as against the earlier Rs 90 crore. As part of expansion, a complete yarn making plant with 32,256 spindles of Reiter make from Philippines has been bought by the company which will be installed in the existing spinning unit owned by the Meridian in Pollachi taluk. This would be operational by January next and will increase the Precot Meridian's total spindle strength to 1.92 lakh.The company had also placed orders to import 24 high-speed airjet looms and they will be commissioned by July 2006. This will increase its total loom strength to 117. These additions, according to Mr Ashwin, will increase its weaving capacity by 45 per cent during 2006-07 fiscal.

(This article was published in the Business Line print edition dated March 18, 2006)
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