The financial performance that the company reported last year helped the sentiment in the stock a good deal. Even though the operating margins were down the company reported a demand growth from the export market. Revenues from domestic sales were higher by 14 per cent but export revenues were higher by 22 per cent. Operating margins were strained owing to higher input costs and fell from 35 per cent to 29 per cent.

Over the last couple of years it has began to wind down its production of CFC gases, which carry a lot of export restrictions and subsequently wrote off these assets and has instead begun to concentrate on producing HCFC gases instead, which can beexported to Europe, its main market.

GFL has done something rare for an Indian company in providing for the diminution in the value of investments amounting to Rs 2 crore, charging it to the revenue account. The company would be a very strong candidate for buyback of shares (it has sought the necessary permission from shareholders) as it has a huge generation of free cash.

Last year it invested Rs 9 crore in units of US 64 (which yields 15 per cent per annum) against its own return on equity of 30.5 per cent, making it an attractive candidate for a buyback.

India Glycols: While the promoters of India Glycols have something to cheer about after the sale of their stake in Insilco to Degussa of Germany, the shareholders of India Glycols also have something to cheer about. The performance of the company has been stable despite the extremely unstable environment for both MEG, a major product, as well as its main raw material, molasses.

The management had anticipated a worsening of the MEG market especiallyafter Reliance Industries commissioned new capacities in 1997. The downtrend in MEG prices has only accelerated since then (aided both by higher domestic installed capacities as well as falling international prices). Last year itself the company had decided to look at other glycols derivatives products in order to push growth and try and maintain margins. It made good that decision, while it reduced MEG volume sales by 11.5 per cent, it managed to push up volume sales of ethoxylate (EO derivates) by 31 per cent.

Realisations have been much more stable in the latter product as the applications are spread over a larger number of industries as compared to MEG.

The alcohol-based chemical industries have been unsuccessful in their attempt at trying to reintroduce controls on the sales and distribution of molasses. But with the latest Supreme Court judgement favouring the industry it is a matter of time before the judgement is implemented and input costs fall to that extent. As it is, the cost of molasses tothe company has increased by 48 per cent in the last one year from an average Rs 615 per to Rs 908 per tonne (molasses prices vary within different states).

While rating agencies have been downgrading companies in the chemicals industry; the outstanding ratings of India Glycols were maintained at a rating review done recently, these were true for the company's short term CP ratings as well as the long term debt rating. Now, that the business has assumed some amount of stability, the company has maintained dividend at 20 per cent. Though the financial risk is low as over two thirds of the total assets are funded out of internal accruals at the same time its capital employed continues to grow very fast; last year the company increased its capital by 25 per cent to Rs 164 crore but managed to increase revenues by only 14 per cent to Rs 138 crore. In other words the capital inefficiency that had plagued India Glycols last year only seems to have worsened.

Thus the gains that the company has managed will nottranslate into rewards for shareholders in the form of an appreciating stock price.