Industrial Oxygen Ltd (Inox), a leading manufacturer of industrial gases, has been another exception. At its present level Rs 305, the scrip has gained more than 70 per cent from its mid-May price of about Rs 175. At the same time there is no impressive operational performance to back the spurt in the scrip.

Operationally, it is a lackadaisical show, characterised by stagnating profits over the last three years. As such, the more plausible cause of the surge can only be traced to persistent rumours that international industrial gas majors are about to pick up a substantial stake in Inox.

For Inox, such rumours are nothing new. In fact, during August 1997, after a section of the media fuelled rumours, the company denied holding any talks with AirLiquide SA of France for the latter to pick up a good chunk in Inox's equity. Indeed, by then the foreign financial collaboration rumour had pushed up substantially the scrip's market price from less than Rs 90 in May 1997.

At its current price, the Inox scrip has gained more than 80 per cent from its end-1997 closing of Rs 162 per share. Of course, this price gain has been achieved on the back of increasing volumes. The average volume per day, which was 7,400 shares in January 1998 and which dipped to 2,200 shares in February, has improved to over 20,000 shares since March. In the last two months, the volume surge appears to have gained further momentum, with the scrip posting a cumulative volume of 25 lakh shares, or about the total floating stock in the counter, over just 42 trading sessions.

Consequently, the average volume per day in the last two months zoomed to 67,800 shares and 51,500 shares respectively. No wonder the price gain in this period has been over Rs 70 per share, or 30 per cent.Promoted by LK Jain and KC Godha in 1963, Inox is engaged in the manufacture of industrial gases, primarily oxygen and nitrogen, air separation plants, nitrogen plants etc. The company, with a predominant presence in the western region, has a market share of about 20 per cent at the national level.

Inox entered the capital market in May 1994 with a Rs 35.42-crore maiden public issue of equity shares at a premium of Rs 130 per share. Simultaneously, it allotted 1.50 lakh shares at a higher premium of Rs 160 a piece to Jardine Fleming on a firm allotment basis. Post-issue, the share capital of the company went up to Rs 9.40 crore of which the promoters held about 72 per cent. However, for the promoters about 83 per cent of their holding came from bonus issues. Subsequently during fiscal 1997, SMS Udyog, a closely-held company operating in the same business and belonging to the promoters, was merged with Inox. This merger took the capital of Inox to Rs 10.38 crore and the promoters' stake to 74.5 percent.

Despite its consistent profit-making and dividend-paying history, Inox does not seem to have done justice to its niche position as one of the major players in the industry. Between fiscal 1992 and fiscal 1998, Inox's turnover grew from Rs 32 crore to Rs 152 crore. During this period, profit before depreciation, interest and tax also kept pace, moving up from Rs 8.10 crore to Rs 41.29 crore. However, the net profit after increasing from Rs 2.59 crore in fiscal 1992 to Rs 15.46 crore in fiscal 1995, stagnated during the later years, due largely to higher interest and depreciation charges. In the last three years, though Inox comfortably surpassed its turnover targets, it failed to achieve profitability projections made at the time of its maiden public issue in 1994.

As against promised profits of Rs 18.79 crore, Rs 19.68 crore and Rs 20.62 crore for fiscal 1996, 1997 and 1998 respectively, Inox could only manage to post profits of Rs 15.47 crore, Rs 14.49 crore and Rs 16.74 crore,respectively.

Notwithstanding the deceleration in profit generation, the company, in the last three years, maintained the dividend at 25 per cent which was up from the 10 per cent and 20 per cent doled out at the beginning of the decade.

Inox's latest market price of Rs 305 discounts its last reported earnings per share (EPS) of Rs 16.10 nearly 19 times and its book value of Rs 109.46 2.8 times. As against this, Gujarat Fluorochemicals, another listed company belonging to the promoters and operating in the same industry, is quoted at about Rs 47 on the bourses, that is at a price-earnings (P/E) multiple of just 2.3 times and market-price-book-value ratio of 0.6 times. The industry composite P/E multiple for this sector is 12.3. Therefore, based on fundamentals, the Inox scrip appears to be substantially overpriced.

From another angle, the industrial gas industry is characterised by low turnover to capital ratio. Not only that, it also suffers from overcapacity and is poised for overcrowding. Byrecently setting up a local base on its own, Praxair, a global major, might have shown the way to other international aspirants like Air Liquide, BOC Plc and Air Gas Products, which among themselves control more than half of the global industry. In the light of these facts, the pious wish of rumour-dispensers that Inox might facilitate the entry of a global player leading to better times could just remain that -- a pious wish and nothing more.

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