The stock has been on a long-term decline. Since October 1994, the stock has been on a continuous decline and has fallen by more than 97 per cent from the peak of Rs 360---a complete erosion of shareholders' value.

The company, however, blames the economy much more than its own vision/policies for its financial performance. Like many other corporates, the company invested in expansion programmes. These expansion programmes, which were expected to give a boost to the company's revenues, materialised at the wrong time.

By the time the company completed these expansions, the demandfactor had gone against it. According to JK Corp, in the past five years, the capacity of paper has been increased by over 50 per cent besides the installation of a pulp mill.

During the same period, the capacity of the cement division has been increased from 0.6 million tonne to 2 million tonnes. Similarly, polyester and audio magnetic tape capacities have also been increased by 100 per cent and 70 per cent respectively.

During 1997-98, the paper division's contribution to revenue was 41.96 per cent. The cement division's contribution stood at 37.38 per cent. At the same time, the polyester division accounted for 17.46 per cent---significantly lower from 25 per cent the previous year. Revenues from the audio-tape division were marginally above 3 per cent.

Although sales from the paper and cement divisions recorded a jump of 10 per cent and 19 per cent respectively, it was at the cost of profit margins.

Margins on the operational front dipped sharply from 13.98 per cent to 8.05 per cent. This coupledwith a 31 per cent jump in interest burden, gross losses stood at Rs 51.22 crore.

But this did not prevent the company from investing in subsidiary companies. During 1997-98, the investment of the company rose from Rs 262.84 crore to Rs 299.04 crore and a major portion of the fresh investments went into subsidiary companies.

For example, investments in Mayfair Finance, a subsidiary, has gone up from Rs 12.37 crore to Rs 17.02 crore. The company has also pumped in additional funds into other subsidiaries---Sidhi Vinayak Investments, Terrestrial Finance and Yashodhan Investments. Overall, investments in subsidiaries have gone up from Rs 47.16 crore to Rs 81.15 crore.

At a time when the company is making losses and the interest burden is at high levels, such steps would undoubtedly affect the sentiment, which is already at a low ebb.

In fact, the steps go against the chairman's statement, in which he hinted at financial and business restructuring. One of the first steps would be to restructure the debtobligation. If the company has such plans, what was the need of fresh investments in subsidiary companies? As a result of huge borrowings, the interest burden is very high for the company. As on March 1998, total borrowings stood at Rs 1317 crore, up by 25 per cent from Rs 1,054.75 crore. During 1997-98, the interest burden stood at Rs 115.06 crore---much higher than the operating profit.

Not only this, lack of demand has also forced the company to extend its average credit period from 77 days to 86 days. In fact, debtors more than six months have gone up from Rs 8.53 crore to Rs 16.68 crore--clearly a bad sign.

In fact, the chairman's statement claims that during the 10-year period till 1995-96, the company's revenue grew at a compounded annual rate of 22 per cent, and PBT at 37 per cent.

The performance of the company may have worsened in the past two years, but the shareholders' value--that is market price--has been on a southward journey since October 1994. Huge equity dilution was the root of theproblem, which worsened further as the company failed to perform as per market expectations.

For the future, since the three main segments--cement, polyester and paper are yet to show any recovery, a major turnaround in the performance is highly unlikely. However, since the stock market has discounted all the negative factors, with the overall market, the stock might witness a rally. And that could be used as an exit opportunity.