Merger Fails To Enthuse

Although on the basis of the scrip prices, the ratio appears favourable to shareholders of JPCL at present, the gap may not remain after the merger. With the increased supply of paper as a result of the merger, the scrip price of JISL may come under pressure. Two other group firms-- Jain Kemira Fertilisers (JKFL) and Jain Rahan Biotech (JRBL) will also be merged with JISL. These companies are not listed on the bourses. JKFL shareholders will get one share of JISL for every 25 shares. For JRBL, the ratio will be 12 shares.

More than the merger of JPCL, perhaps the stock markets have factored in the negative impact of the merger of these two unlisted companies.

Reports say the move is aimed at bringing about an integration of the agriculture and agri-related plastic processing business. Although the group has plans to divest its investments in Atlaz Technology, a computer software and telecommunications company, investment in unrelated areas will continue to affect the discounting.

JPCL has invested heavily in a subsidiary, Gowtham Granites. During 1995-96, JPCL pumped in an additional Rs 2.49 crore as equity. It made a further unsecured loan of Rs 10.26 crore to Gowtham Granites.

The restructuring has been done with a view to access low cost funds from domestic and foreign markets to make JISL a one-stop-shop for agriculture related inputs ranging from micro-irrigation systems, pipes, liquid fertilisers to fruit processing.

Restructuring group operations with a view to consolidating the balance sheet will help the company raise money. But the group's track record in servicing shareholders in the past equity issues may stand in its future plans.

JISL made a GDR issue at a price of $11.12 (around Rs 400) two years back. Each GDR represented one underlying share. Presently, the GDR is available at $1.30, a 88 per cent discount to the offer price.

Similarly, the shares of JPCL are also available at more than 50 per cent discount to the offer price in the domestic market.

Besides, performance of both these companies have been far from impressive in the recent past.

For the six months ended September 1996, net profit at JISL declined 64 per cent to Rs 2.50 crore on sales of Rs 84.49 crore.

For the same period, profit at JPCL fell by 38 per cent to Rs 1.36 crore on a sales turnover of Rs 51.04 crore.