This is exactly what seems to have happened to Corn Products Co (India) Ltd's scrip which has posted gains of more than 150 per cent in the last 45 days of trading on the Bombay Stock Exchange (BSE). Or is there more to it?

After being a dormant counter for a long time, the fledgling food product company's scrip has suddenly witnessed increased activity since the beginning of last month. Prior to July 1998, Corn Products' 52-week high and low quotes were Rs 181 as on April 21, 1998, and Rs 90 as on December 15, 1997, respectively. However, the scrip, which closed at Rs 157.50 in June 1998, has, out of nowhere, surged forward from Rs 160 on July 13 to a phenomenal Rs 416.50 at present on the back of high volumes.

As against a cumulative volume of only about 90,000 shares in 63 trading days in the first six months of calendar 1998, the counter has witnessed a cumulative volume of nearly 200,000 shares in only 29 trading sessions since July 1998. This period of increased activity coincided with the announcement of impressive results for the first quarter of the current fiscal by CPCL.

Turnover recorded a growth of about 19 per cent to Rs 12.66 crore, while net profit vaulted to Rs 1.66 crore from Rs 0.35 crore, a growth of over 350 per cent. The company owes its increased profitability during the period to reduced costs besides a non-recurring income of Rs 0.42 crore received from its US promoter for the closure of its industrial products division.

The reported profit for the first quarter of the current fiscal translates into an annualised EPS of Rs 19.20. However, the trend over the last two years indicates that traditionally CPCL posts a higher profit in the first half than in the second one. For instance, in fiscal 1997 CPCL recorded a net profit of Rs 1.42 crore in the first half and a net loss of Rs 0.70 crore in the second half. In the following year, it posted a net profit of Rs 1.28 crore in the first half and a loss of Rs 2.58 crore in the second half. Therefore, despite the fact that CPCL turned out impressive results in the latest quarter, the market could not have read too much into it.

Next comes CPCL's notice to the BSE on August 14, wherein it had indicated its proposed acquisition of `Captain Cook' salt business from DCW Home Products (DCWHP), including the trademark and the manufacturing facility at Gandhidham. It is reported that the branded salt market is valued at Rs 280 crore of which the Captain Cook brand held a market share of 19 per cent, that is more than Rs 50 crore.

While the cost of the acquisition is not yet known, the moot question is how CPCL will fund it. A scrutiny of the annual reports of CPCL for fiscal 1997 and fiscal 1998 shows that the company has lost funds from operations. Even if the first quarter of the current fiscal has resulted in positive contribution from existing operations, there is no likelihood of substantial funds being generated from internal accruals.

However, CPCL held bank balances amounting to Rs 13 crore in March 1998, a major portion of which could be available for the proposed acquisition. But on the flip side, it needs to be highlighted that the company could post a profit of Rs 1.08 crore in fiscal 1997 only on the back of interest from bank deposits amounting to Rs 2.18 crore. Similarly, in the following year, but for the interest on bank deposits of Rs 1.53 crore, the reported loss of Rs 1.29 crore would have been higher. Therefore, while the acquisition of the new brand might see the company post additional turnover and possibly, profits from the new activity, it is not likely to have a favourable impact on the existing working.

As a result, the working of CPCL as a whole may not improve very significantly. Another question that needs an answer is whether the Rs 10-odd crore in its kitty is enough for funding the acquisition. If not, will the company decide to fund the additional requirement through borrowings? Since CPCL's net worth and borrowings amounted to Rs 20.46 crore and Rs 2.15 crore, respectively at the end of fiscal 1998, it may be possible for the company to raise additional debt funds to finance the acquisition. However, the incremental interest costs would strain the already not so bright bottomline.

From another standpoint, CPCL's proposed brand acquisition is intriguing, since the company's foreign promoter, CPC International Inc (now known as Bestfoods), is itself a $8.5 billion world leader in the branded food products market. The Indian arm has been marketing brands like `Knorr' and `Brown & Polson' obtained from its parent. Maybe it did not want to rub salt into the wounds of the swadeshi brigade, well known for nurturing its brands.

In the past, it has failed to derive mileage from its popular brands like Glucovita, Insta Pep, Trinka, Mazolla, a low calorie cooking medium, and Rex sandwich spread, leading to their eventual extinction. While other international and Indian companies have multiplied their businesses many times over, CPCL's Rs 40-crore turnover in its 67th year of operation is but a sad commentary on the half-measures employed by it.

In this backdrop, the spurt in the scrip's volumes over the last few days does raise a few eyebrows. Company circles view the increased activity at the CPCL counter and the improved share price as a positive reflection of the proposed acquisition of salt business from DCWHP.

But while the announcement came only last week, the scrip's northward march started in July itself. Given the hollowness of the company's claim for the reasons recounted above and the low floating stock (18 per cent), could it be that some interested elements are driving up the price on hype alone?

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