Over the last two years, Kopran's loans have been about 1-1.21 times the equity shareholders' funds.

In an attempt to reduce the proportion of loans in the company's capital structure, about 70 per cent of the money from the rights issue will be used to pay existing long-term debt.

If the promoters do not subscribe to the rights issue, their holding will drop from 49.31 per cent to 44 per cent.

More so, when one considers the guarantees given by Kopran for KDL Biotech's borrowings. On the positive side, Kopran sold a leading cardiovascular brand, Aten, to Zydus Cadila last year. The deal has led to an inflow of Rs 75 crore in fiscal 2002, and another Rs 20 crore will follow in the years to come.

While the deal takes away a leading brand, it reduces the pressure on Kopran's financial situation. The share price in the stock market has been around Rs 40. But an overview of the situation suggests that it may not be prudent to increase exposure to Kopran.

The company has significant hurdles to clear, and more exposure at this stage appears unduly risky for a long-term investor.

Subscribing for the rights offer at Rs 40, about 5 times Kopran's annualised earnings per share (EPS) in 2001-02, may be avoided.

Issue highlights: The offer ratio is one share for every two held. The issue price is Rs 40 per share. The issue closes on June 7. The lead manager is KJMC Global Market.

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