A fleeting look at the stock market performance shows that for the better part of 1996-97, the JSL scrip had traded in the range of Rs 140 to Rs 180. But after reporting dismal results for the financial year 1997-98, the scrip hit a low of Rs 105 sometime in July 1997. Though it recovered marginally to trade at around Rs 122 for sometime, the scrip ended up on a bearish run.

At present, the scrip is languishing around the Rs 95 mark, after hitting a low of Rs 75 sometime back. At the current market price, the entire value of the firm calculated by adding the market capitalisation (market price multiplied by total number of shares) and its whole debt works out to around Rs 82 crore.Simple mathematical analysis drives home the fact, an acquirer could theoretically purchase a company like JSL with a turnover of around Rs 140 crore at the price cited above (Rs 82 crore).

At current estimates, setting up a greenfield project with a capacity akin to JSLs would at least require a capital investment of Rs 300 crore. This all the more makes it logical for potential buyers to explore all possibilities to take a piece of the JSL cake.

No surprise that Asean Brown Broveri, GEC-Alsthom and other global majors in power transmission have evinced interest in taking an equity stake in JSL. The fact that these companies had executed a number of projects for JSL seems to have given them the confidence to participate in its equity. Globally, the power transmission business is characterised by strict entry barriers in the form of pre-qualification norms. Indian companies normally tie up with foreign companies to meet the pre-qualification norms.

A case in point is that of the UPSEB tender for oneportion of the Overseas Economic Co-operation Fund (OECF) of Japan funded 800 KV line project for which JSL tied up with Hyundai to meet the norms. It has to be mentioned that although JSL has borrowed Hyundai's name, it carried out much of the work.

The Valecha and Mirchandani groups are the joint promoters of JSL. Incorporated in 1975, it started production only in 1980. Its manufacturing facilities are located at Nasik in Maharashtra and Raipur in Madhya Pradesh. At present it has a 11 per cent market share in the domestic market. Moreover, it has a substantial exposure in the export market. It has built up a reputation as a quality supplier of transmission towers in countries like Malaysia, Indonesia, Philippines, Australia and Nepal. An acquirer can very well leverage on this and expand his business in these countries. More importantly for the financial year 1996-97, 65 per cent of JSL's turnover comprised of physical and deemed exports.

For the year ended March 31, 1997, JSL reported a 38 per centdecline in net profits. Operating margins declined to 14.46 per cent from 17.72 per cent. Tight cash flow caused operational problems particularly in the second half, leading to increased costs. Large payments held up with customers for as long as 8 months also contributed to reduced cash flows. As a result JSL, had to resort to additional borrowings. Its bank working capital enhancement got delayed and was forced to take unsecured loans to the tune of Rs 4 crore from Stanchart at around 17 to 18 per cent. Furthermore it resorted to an ICD borrowing of Rs 5.5 crore for a 130 day period. All this resulted in a net negative cash flow from operating activities amounting to Rs 9 crore.

Considering the current spate of takeovers and mergers going on in the domestic industry, one would not be surprised if an Indian company made a bid for JSL. Is KEC listening?