Kopran Limited's recent offer of rights issue for realizing Rs 28.60 crores has not been taken to kindly by analysts who wonder what the company is upto.

The management, which is hopeful of full subscription of the issue, says the rights issue is for partial retirement of debts of the company which is ranked 52nd in Indian pharma industry by ORG-MARG for the twelve month period ended November 2001. The company had a sales of Rs 196.73 crore for the nine months of 2001-02 ending November and a profit of Rs 7.07 crore. The company has a total debt burden of Rs 160 crores as of now.

Following the issue of the offer on April 29, 2002, the share closed at Rs 52.8 on May 6, 2002.

During 2001-02, the company had sold its Rs 33 crore brand Aten which may adversely affect the turnover and profits of the company. The management claims that it has entered into a strategic alliance with Zydus Cadila whereby it has sold Aten brand along with technical knowhow for formulations and bulk to Zydus from October 1, 2001. The company has already realized Rs 70 crores as part of the deal and technology fees of Rs 5 crores. The company hopes to augment the reduced turnover with the help of new CVS brands Cholestat (Atorvastatin), Klodip, Lisir AM (lisinopril-amlodipine) and Carvac (Carvedilol).

The objects of the rights issue are to finance retirement of debt (Rs 20 crores), long-term working capital (Rs 5 crores), research and development (Rs 3.35 crores), and issue expenses (Rs 25 lakhs).

The company is offering 71,50,000 shares of Rs 10 each for cash at a premium of Rs 30 per share, aggregating to Rs 28.6 crore on a rights basis, in the ratio of one equity share for every two equity shares held on the record date of March 28 this year.

"There is no long-term vision in the company. How else do you explain away the sale of the most prized brand in the company - Aten (atenolol) - to Zydus Cadila? It shows the promoters have no interest in the business," said an analyst.

It is learnt that Kopran had sold off Aten as the promotion of the brand was marginalizing other brands of the company. Though the brand was growing in double digits, the molecule was recording only a single digit growth. Kopran also perceived a threat from the acquisition of ICI India Ltd (which had a leading CVS brand Tenormin) by an Indian company (Nicholas Piramal India Ltd) which could then nibble away at Aten revenues. The best option left was to encash the brand which the company did.

The company hopes to make up for the loss of topline and bottomline on account of Aten by creating new products across asthma, cardiovascular, musculoskeletal, gastro-enterology, diabetes, CNS and, to a small extent, anti-infectives. The Rs 25 crore Smyle brand of cough and cold medications is expected to pitch for a turnover of Rs 35 crores in this financial year.

"Why do they need the money given that they have disposed of their crown jewel and are selling off one by one?" asked another analyst who also said Kopran is contemplating sale of one of their plants in Maharashtra. The company has a finished dosage form plant at Savroli village in Khopoli and a specialty bulk plant at MIDC, Mahad, both falling under Raigad district of the state. The Mahad bulk unit provides most of the raw materials required for formulations manufactured for the domestic and export market.

The management, however, says it has no plans to sell off any plant or brand as the sale objectives have been fulfilled with Aten. Merchant bankers are said to be persuading the company to sell off the Vent range of respiratory products and the Smyle range of products.

The management, which believes its only mistake was extending a Rs 28 crore inter-corporate deposit to the now discredited Ketan Parekh, has said that it has made a provision for doubtful debts for Rs 30.62 lakhs including the amount due from KP in what it claims is an example of its transparency.

According to information received here, the objective of the rights issue is to retire the debt of Kopran. Discussing the sale of Aten, a source close to the company said, "when somebody offers a higher price for your product, there is no reason why should not sell. The company can develop new brands even if it takes around five years to develop each." He said the company is in a good shape now and the promoters are giving an opportunity to shareholders to increase their investment.

Asks an analyst, "What does Kopran have in it after the sale of Aten? The best product has gone. It is very difficult to grow new brands just like that. It all sounds suspicious."

The issue opens on May 8, 2002 and closes on June 7, 2002. The promoters, who hold 49.31 per cent stake in the company, have agreed to pick up all the remaining equity rights when the issue closes. The company has no plans to acquire brands with this money, it is learnt.

The company has completed advance pre-clinical studies for Kopran New Chemical entity KNC6, an anti-ulcerant, and KNC1206, a bowel regulator which are expected to reach the market in 2005 and 2006 respectively. The company hopes to outlicense these molecules to global companies.