However, this year, the pre-budget hammering of cigarette-scrips was absent. In fact, the industry leader, ITC, gained 19 per cent over a period of two months since the beginning of this calendar year. And Godfrey Phillips India Ltd (GPIL) did even better, flaring up by as much as 134 per cent in the two months preceding the budget.

As if justifying the cigarette industry's pre-budget cheers, the 1999-2000 budget too has been kind to them. Probably for the first time in many years, the industry has received no harsh treatment from the finance minister in terms of excise levies. But the kindness in the budget alone cannot be the reason for the whopping increase of around Rs 500 in the Rs 10 paid-up GPIL scrip, that too whenthe industry leader and the market's hot favourite, ITC, could gain hardly Rs 150 during the same period.

Some analysts in the market might say, "GPIL's fundamentals are such that if ITC can quote at around Rs 900, GPIL is definitely worth at least twice that amount". Well, back of the cigarette pack calculation concedes that GPIL has the advantage of a low equity base of just Rs 10.4 crore as against ITC's Rs 245.41 crore. This has facilitated a better earnings per share (EPS) of Rs 37.36 for GPIL in the last fiscal as opposed to ITC's Rs 21.44.

Also, on a lower equity, GPIL could pay a much higher dividend of 100 per cent, or 55 per cent more than what ITC paid last year. Nevertheless, in terms of profitability, ITC seems to be much ahead of GPIL. ITC's profit margins are twice GPIL's at all levels. The fundamentals, therefore, do not fully endorse the hypothesis that GPIL should be 200 per cent higher than ITC.

What then is the reason for the recent leap in the share price of GPIL? Marketmen creditthe rise to a possible proposal from GPIL's foreign promoter to hike its stake from 36 per cent to 51 per cent. It is said that Philip Morris Inc of US recently approached its Indian counterparts in GPIL, the KK Modi group, with an offer to buy out the latter's stake in the company at a price of Rs 1,400 per share. The Modis are believed to have demanded, in turn, a price of not less than Rs 2,000 a share.

It is indeed more than ironical that Philip Morris, which made an `offer for sale' 20 years ago at just par value in order to trim down its foreign holding to not more than 40 per cent, is now offering to buy the same thrown-away-papers at a whopping premium of Rs 1,390 apiece!

It is all beyond the dictates of the market. The political diktat in the West, particularly in the US where Clinton's health policy is demanding cigarette producers to cough up hefty payments, is driving them to the wide-open arms of ever-videshi-friendly swadeshi `treasurers'! The sacked advisor from the North Block, now amember of the growing CSMC (`club of the sulking media-commentators'), had given enough indication about it ahead of the budget. Incidentally, GPIL will be celebrating its `silver jubilee' of going public next year.

The genesis of GPIL dates back to more than six decades. The company commenced operations in 1936 as a subsidiary of Godfrey Phillips of UK for the manufacture and sale of cigarettes in India. Subsequent to the takeover of Godfrey Phillips, UK, by Philip Morris of USA, the latter acquired the majority stake in the company. GPIL went public in 1975 and in 1979 an `offer for sale' was made by the foreign promoter to fulfill the then Fera regulations.

It was only in 1980 that the Modi group acquired an equity stake in GPIL. Today, whereas Philip Morris, USA, holds a little over 36 per cent of GPIL's equity, the Modis' stake is put at about 31 per cent and the financial institutions are holding around 3 per cent. The balance 30 per cent is widely held by about 18,000 public shareholders.

Asregards GPIL's image in the stock market, though the company has a few strong brands and sound fundamentals to boast about, it has hardly attracted any genuine investments from the investing public until recently. In the past too the scrip could scale new peaks only on the back of rumours that the foreign parent was going to increase its stake. In fact, about 10 years ago the scrip was languishing below par. During the 1992 stock market boom, it did peak to Rs 900. But it could hardly sustain the tempo.

The reasons were not far to fetch. The parent had, at least publicly, evinced a distant and hands-off interest in the company. Though Philip Morris is the single largest shareholder, it has no worthwhile, strong, identifiable representation on GPIL's board. Of the three Indian directors representing the foreign parent, one is the titular chairman and another a whole-time director.

The public perception is that the Modi group, which holds 5 per cent less than the foreign parent, steers GPIL with KK Modi asits `President'! Since GPIL is considered a part of the Modi group, it has been naturally sharing the poor investor sentiment, which is commonly reserved for the Modi group of companies.

But when the market had reasons to speculate that the overseas parent was likely to up its stake, the scrip has witnessed a rally. The first such rally was in 1992-93 and the other in 1996-97. What about the present rally and what will its peak be? In the absence of any official clarification from the company's local management and its foreign parent, it may be difficult to forecast the price band.

However, if the market grapevine's bullish sentiment is indeed true, then, one is bound to see a lot more activity in the counter, as still there is a wide gap between the rising current market price and the price said to have been offered by the foreign promoter to the Modis.

Meanwhile, every increase in the market price can only bring more cheers to the Modis as it enhances their bargaining power with Philip Morris. As forthe foreign promoter, since the present market price is much lower than the price it is supposed to have offered to the Modis, it is lucrative for it to mop up at least another 5 per cent from the market before the takeover code catches up with it.Arranged by Investar -- The Aarthik News & Research Syndicate