The scrip, which clocked a maiden quote of Rs 7 apiece, briefly touched its par value during the day before closing at Rs 9 with a total volume of 6,200 shares for the day in 17 trades. During the next three days, the scrip was traded between Rs 8 and Rs 10 while the volumes witnessed a mixed trend. The stock closed at Rs 10 on October 29 with a substantially lower volume of 900 shares.

But before you start wondering as to when ILFL made its public issue, please note that it did not make a public offer. It became a public company out of a `restructuring exercise' undertaken by the Inox group in fiscal 1997.

ILFL, which was incorporated on February 17, 1995, had an initial capital of Rs 1 lakh, entirely subscribedto by the flagship company of the group, Industrial Oxygen Company Ltd (IOCL). Thus, ILFL was a 100 per cent subsidiary of IOCL in fiscal 1996, a year during which ILFL did not carry out any activity. At the end of fiscal 1996, IOCL had an equity capital base of Rs 9.40 crore.

In the following year, SMS Udyog Ltd (SMSUL), another listed company of the group engaged in the manufacture of oxygen, dissolved acetylene and liquid nitrogen, was amalgamated with IOCL. As per the terms of amalgamation, the erstwhile shareholders of SMSUL were issued 16 equity shares in IOCL in exchange for every 100 shares held by them in SMSUL. Post-amalgamation, the equity capital of IOCL increased to Rs 10.37 crore.

Simultaneously, the promoters decided to spin off the investment activities of the flagship IOCL into a new corporate entity. ILFL was thus de-subsidiarised with effect from October 1, 1996. ILFL not only took over the entire Rs 10.77-crore investment portfolio of IOCL, but also that of the erstwhile SMSULamounting to Rs 4.71 crore, besides building worth Rs 1.28 crore owned by IOCL.

In exchange for the Rs 16.77-crore assets taken over by ILFL, the company issued 103.75 lakh equity shares of Rs 10 each free to the shareholders of IOCL in the ratio of one share for every share held by them in IOCL. The equity capital of ILFL thus became Rs 10.37 crore, same as that of IOCL.

The balance amount of Rs 6.40 crore was credited to the "reconstruction reserve" in ILFL's books. IOCL was already a public company listed on multiple stock exchanges and as the equity base and net worth of ILFL exceeded Rs 10 crore, BSE seems to have permitted the listing of ILFL's equity shares. However, the listing status of ILFL's shares on other bourses like Ahmedabad, Calcutta, Delhi and Madras, where IOCL's shares are listed, is not known.

While the foregoing is just about the genesis of ILFL's listing story, has its conversion into a listed company augmented shareholders' wealth? To find an answer to this question, one has toexamine the quality of the investment portfolio of ILFL.

The company has not carried out any activity in fiscal 1998, its first full accounting year after becoming an independent public company. Indeed, more than 98 per cent of the entire income of Rs 1.65 crore in fiscal 1998 has come in the form of dividend.

At the time of its spin-off into a separate public company, the total investments of ILFL amounted to Rs 15.48 crore of which quoted investments accounted for Rs 13.31 crore, or nearly 86 per cent. During fiscal 1998, the investment portfolio went up marginally by Rs 0.21 crore, of which the share of quoted investments was Rs 0.18 crore.

Among quoted investments, there were two predominant entries:

* 43.74 lakh equity shares of Gujarat Fluorochemicals Ltd (GFL), another listed company belonging to the group, carried at Rs 4.37 crore, that is at par; and

* 46.82 lakh equity shares in Niryat Sam Apparels (India) Ltd (NSAL), also another listed company of the group, held at Rs 4.68 crore, againat par. During fiscal 1998, ILFL's holding in NSAL increased by 1.83 lakh shares to 48.65 lakh shares, though the holding cost remained at par.

The investment in GFL is virtually the private promoters' stake in the latter. With the spin-off of ILFL, IOCL is no longer the promoter of GFL, as this status now vests with ILFL. GFL is a profit-making, dividend-paying company of the group, with the last dividend declared at 28 per cent.

GFL is engaged in the manufacture of chlorofluorocarbons, which, according to the Montreal protocol, is required to be phased out by 2010. Therefore, GFL has to change its products or diversify its activities soon. However, as of now GFL's equity share is quoted at around Rs 46 per share on the bourse. In this context, while ILFL's par holding cost of GFL's share affords substantial safety margin to its shareholders, from a practical standpoint, as GFL's main promoter ILFL might not encash the gains.

On the other hand, the other major investment, NSAL, is an unrelateddiversification by the Inox group. NSAL is engaged in the manufacture of mens and ladies woven garments, which is far removed from the group's core competency area of industrial gases.

Not surprisingly, therefore, NSAL has made cash losses in the two years of its existence. Against an equity base of Rs 7.83 crore, the accumulated losses amounted to Rs 7.22 crore. The book value of NSAL, on the basis of fiscal 1998 results, worked out to just 44 paise per share. On the bourses though, the last traded price was Rs 10 apiece, recorded way back in March 1997.

In fact, ever since NSAL's market debut in July 1996, the scrip has been traded only 17 days so far. In substance, therefore, ILFL's investment in NSAL is worth only a little more than a piece of paper, unless NSAL's fortunes improve dramatically.

While these two investments accounted for more than two-thirds of quoted investments, ILFL had an equity exposure in 33 other companies spanning the balance amount. These latter equity investments of ILFLappear to be the legacy of 1994 stock market boom. Quite expectedly, almost all of them have resulted in substantial loss in value.

In contrast, ILFL's unquoted investments, though smaller in size, have been sounder. The notable entry here again is the investment in the shares of a closely-held company of the group, Inox India Ltd (IIL), which seems to have a track record of profitability.

Overall, apart from its holding in GFL and IIL, the quality of ILFL's equity investments leaves a lot to be desired. Even the apparent strength lent to the asset base by the holdings in GFL and IIL might at best remain on paper, since ILFL may not be able to encash the gains from them due to the permanent nature of the holding in GFL and due to lack of market price in the case of IIL.

Notwithstanding the quality of the asset base, there is no denying the fact that the current price of Rs 10 per share for ILFL share has been a mini-handout to the shareholders of IOCL. What's intriguing here is that the share price ofIOCL does not seem to have adjusted for the shift in the asset base, especially the GFL holding to ILFL. Thus, the shareholders of IOCL might have received an incremental benefit in the form of free shares from ILFL. Of course, the benefit is likely to diminish if all, or most, of them seek to encash the free shares at once.

The real reason behind spinning off ILFL into a separate company still remains unanswered. Our repeated efforts to ascertain from the management the facts behind the spin-off proved futile. The restructuring cannot be justified on the grounds of retaining focus in the core competence area of IOCL. Since ILFL has been totally dormant, the investment activities of IOCL could not have consumed the valuable time of the promoters. Similarly, given the state of the primary markets and its special aversion for the finance sector, ILFL's spin-off could not have been with the intention of raising public capital. Perhaps, only time can unravel the mystery behind the public positioning ofILFL.