The condition was that fresh valuation should be done based on the accounts for the financial year ending March 31, 1999, the source said. This has already been communicated to a consortium of banks. Pravin Kumar Tayal, however, declined to comment on the issue, adding that the proposal is being discussed with institutions.

Institutions feel that the ratio is not justified considering the fact that Krishna Texport Industries is a thinly-traded company and has low-fixed asset base. The proposed ratio was one share of Krishna Texport for every 4 shares of SreeKrishna Petro and 5 shares of Sree Krishna Polyester.

The promoters hold around 93 per cent stake in Krishna Texport and this ratio would help them shore up their stake substantially in the merged entity. Institutions, which had picked up shares of Sree Krishna Petro and Sree Krishna Yarn during the 1995 issue, stand to lose in the process, the source said.

Tayal group had all along been maintaining that the merger scheme has been prepared with a view to achieve synergies in finance, production, marketing and finance. Also, the amalgamation will provide easy market access to products as all the companies are producing knitted fabrics. Since the knitted-fabric segment is becoming highly competitive, the combined operations will improve overall profitability, said company sources. Despite the fact that both Sree Krishna Petro Yarn and Sree Krishna Polyester have been doing exceedingly well, their shares have commanded a PE ratio of only 1.15 only. With Krishna Texport is a healthy 4.4, the promoters havebeen considering merger as one of the possible measures to improve shareholders' wealth, said Sree Krishna sources.

Krishna Texport Industries' turnover has grown phenomenally in the last three years from Rs 8.53 crore in 1994-95 to Rs 251.4 crore in 1997-98. The net profit went up from Rs 2.38 crore to Rs 21.20 crore over the three-year period.