One of the things that is probably the cause for the rally is the perception that the parent company Whirlpool Corporation, USA, would like to raise its stake further. What has prompted this speculation is that the parent company expressed the intention to acquire additional shares beyond their entitlement during the rights offer. Further, the company has obtained permission in March 1999 to increase its stake to 91 per cent. Just prior to therecently completed rights issue in April 1999, the parent company had increased its stake to 82 per cent. The thinking in stock market circles right now is that the parent company would eventually like to delist the company, which can only be achieved through an open offer or a buyback of shares, hence the demand for the stock.

Gujarat Flourochemicals

The company is one of the largest manufacturers of chloroflouro carbons in the country, and it has consistently generated free cash and incremental returns on capital year on year. However, despite net profit growing at a compounded annual growth rate of 19 per cent over the last five years, the company has maintained its dividend rate at just Rs 2.75 per share for the last couple of years, with a steadily declining payout rate. For the last financial year, the company paid out just 10 per cent of its net profit, despite recording a 50 per cent PAT growth over the previous year. In 1997-98, the payout ratio was 15 per cent. Almost two thirds (Rs 109crore) of the entire balance sheet of Rs 160 crore is locked in gross working capital. And of this, nearly half consists of cash balances and inter-corporate deposits. Another Rs 30 crore or one fifth of the balance in locked in various investments.

Instead of increasing the payout and returns to shareholders, the company has found alternative uses for the cash and liquid assets lying with it. It has decided to get into the power business, an idea it has been toying with for some time. It intends setting up a 43 MW liquid fuel power plant in Kerala. It is also contemplating to venture into the entertainment business by setting up multiplexes. It is not clear how much the company intends to invest in these businesses.

What is also equally unclear is the status of its current businesses. Under the terms of the Montreal Protocol, the company has to begin phasing out manufacture of CFCs from July 1999. Other leading players have already begun that process. Any delay here could jeopardise all future earnings.It is the uncertainty both over its current business as well as the hesitancy over its plans which has served to limit the demand for the stock. The stock at present trades at a price earning multiple of just two times historic earnings. The stock saw a 52 week high of Rs 90 but could not maintain it. It has since lost over 20 per cent of its value despite an increase in earnings.