Pune-based Thermax Ltd (TL) is a classic case. This one-time blue chip, which has dished out a below-average performance in recent times has defied both gravity and fundamentals in one go. Since the end of May this year, the scrip has nearly doubled in value from about Rs 132 to Rs 255, despite the liberal sprinkling of red ink in TL's bottomline for the first quarter of the current fiscal. In the last fortnight alone, the TL scrip posted a neat gain of over 30 per cent, while erasing and resetting its 52-week high many a time.

Disturbingly, however, empirical evidence points to the increased presence of smaller investors in the TL counter. The average daily trading volume, which had improved from 30,000 shares in April this year to 1.97 lakh shares in June simultaneous withsubstantial price gains during the period, has now begun to falter. After sliding to 1.34 lakh shares in July, the average volume per day slipped further to 1.23 lakh shares in August so far. Incidentally, the average volume per trade in recent times has been below 250 shares, indicating retail interest in the counter.

Intriguingly, much of the price gain has come in the current month after the company announced its poor first quarter results for the current fiscal towards the end of July. In this quarter, while TL's gross income retarded to Rs 69.86 crore from Rs 78.87 crore in the corresponding period of previous fiscal, net loss soared up to Rs 9.13 crore as compared to Rs 0.65 crore in the previous fiscal, despite a much reduced interest outgo. In fact, TL's recent performance indicates that the company struggled to come to terms with its pre-eminent position in the industry ever since it was deprived of the visionary guidance provided by its founder, Rohinton Aga, who died prematurely in February1996. Between 1992 and 1996, TL's turnover nearly doubled from Rs 243.87 crore to Rs 470.43 crore.

In the same period, the company's operating and net profits moved up impressively from Rs 26.64 crore and Rs 11.54 crore respectively to Rs 69.78 crore and Rs 45.17 crore respectively. Thus, for this 4-year period, the compounded annual growth rate (CAGR) in turnover, operating profit and net profit worked out to 17.9 per cent, 27.2 per cent and 40.7 per cent respectively. In contrast, in the post-Rohinton Aga era, comprising of fiscals 1997, 1998 and 1999, turnover has stagnated while profitability has fallen. In this 3-year period, the turnover saw only a marginal increase from Rs 470.43 crore to Rs 505.32 crore giving a CAGR of just 2.4 per cent. And, operating and net profits slid from Rs 69.78 crore and Rs 45.17 crore respectively to Rs 65.18 crore and Rs 38.14 crore respectively, thereby recording a negative growth.

Come current fiscal. TL has incurred a huge loss of Rs 9.13 crore on a reducedturnover of Rs 69.86 crore in the first quarter. Significantly, for a multi-divisional company with strong presence in energy and environment engineering fields, all the business divisions have reported losses. While TL's project divisions nearly achieved turnover targets but nonetheless churned out losses, its product divisions failed to generate operational volume and hence profits.

It is also reliably learnt that another contributory factor to the losses was the unsatisfactory workmanship of some of its exported products, which, in its own long term interests, TL had to replace free of cost!

Disquietingly, the saga of losses is expected to continue in the second quarter as well. With a not-too encouraging order book position in TL's product division, the second quarter results, and consequently the half-time performance report could make equally disturbing reading. Perhaps the only silver lining for TL could be the expectation of multiple orders for its cogeneration power plants as part of engineering,procurement and construction (EPC) contracts. Here again, unless the projects attain financial closure, which can only be after a popular government assumes charge, EPC contracts are of no immediate consequence.

In this backdrop of turmoil and regression in TL's operations, it is difficult to comprehend the sustained upsurge in the scrip's price line. Whatever may be the cause, TL's present price surge presents a godsend opportunity to the original investors, who had subscribed to the public offer in 1995 at Rs 190 a share, to exit the counter with decent gains.

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(Arranged by INVESTAR - The Aarthik News & Research Syndicate)