The fledgling, and once floundering, GEL has caught the stock market fancy in recent days, with its scrip racing to its present price of Rs 35.40 apiece on the back of increasing volumes on the Bombay Stock Exchange. In fact, in the current month alone the GEL scrip has posted a neat 88 per cent gain over its October closing price of Rs 18.75 apiece. The monthly volume to date in the current month has also been higher at 474,300 shares, compared with 96,700 shares and 357,400 shares tradedin October and September, respectively.

The company itself had a very strange origin. The Ahmedabad-based Ramji Patel-controlled Gujarat Telephone Cables Ltd (GTCL) went all the way to Secunderabad to float GEL jointly with Goldstone Exports P Ltd (GEPL), a member of the, till then, little-known "Goldstone" stable created by LP Shashikumar. Interestingly, GEPL, having a net worth of just around Rs 35 lakh, took in nearly 20 per cent equity, or Rs 1.57 crore, whereas GTCL, with a net worth of about Rs 40 crore, coughed up only 10.75 per cent stake, or Rs 85 lakh.

While the established GTCL was engaged in the manufacture of jelly filled cables, GEPL, the so-called `exports-oriented' company promoted in fiscal 1993, was involved in the supply of cable joining kits to the Department of Telecom (DoT) and MTNL. Quite intriguingly, though GEPL could chalk up a cumulative net profit of barely Rs 11 lakh in three years of operations till fiscal 1995, GEL paid Rs 32.43 lakh to GEPL as "non-compete fees" forrestraining it from competing with GEL for 5 years. In November 1995, GEL made its Rs 4.69-crore maiden public issue of equity.

In the public offer, while the shares were allotted on a firm basis to FIIs/NRIs/OCBs at a premium of Rs 5 per share, the general public was offered the shares at par. The issue was to part-finance a Rs 12.14-crore project for the manufacture of heat shrinkable thermo weld filled (TWF) sleeves with an installed capacity of 2.90 lakh pieces per annum. Surprisingly, though the project was not appraised by any external agency, IFCI thought it fit to extend Rs 3.63 crore as financial assistance to it.

At the time of going public, GEL promised sales of Rs 5.91 crore, Rs 9.05 crore and Rs 10.86 crore and a net profit of Rs 1.01 crore, Rs 2.15 crore and Rs 2.47 crore for fiscal 1996, 1997 and 1998, respectively. Extending its first accounting year by 3 months immediately after the public issue, GEL more than comfortably surpassed all its projections with a lot of margin to spare.

Thecompany recorded a sales turnover of Rs 18.67 crore on which it earned a profit of Rs 3.83 crore for the first 15-month period. In the next 12 months, GEL notched up a higher sales turnover of Rs 26.64 crore and a marginally improved profit of Rs 3.94 crore. During the nine months to March 1998, GEL earned a profit of Rs 2.82 crore on a turnover of Rs 18.73 crore.

On the dividend front, as against the promised 20 per cent, 20 per cent and 25 per cent dividend for fiscal years 1996, 1997 and 1998 respectively, GEL paid 20 per cent for the 15-month period ended June 1996, 25 per cent for the next 12 months ans 20 per cent for the nine-month period ended March 1998.

Normally, an analyst would be tempted to include a company with such a seemingly impressive financial performance over the short duration of its existence in his basket of promising companies to be watched. But despite the seemingly reasonable financial performance of GEL, the scrip was available at around Rs 9 in April this year.

GEL announcedan interim dividend of 20 per cent in mid-April, which pushed the share price to Rs 17.50 within a few days. However, in June, once again the price dropped below par. Perhaps, what spoiled GEL's copybook was its alleged political connection and the promoters' unrelated forays into uncharted waters.

When the Sukhram affair was steaming hot, it was alleged that GEL was awarded in fiscal 1996 a Rs 19-crore order for the supply of TWF sleeve kits. The initial 56,000-kit order was further hiked by another two lakh kits in less than two months, even before GEL could execute the first order. It was also alleged that the TWF sleeves, of which GEL claimed to be the only manufacturer at the time of its public offer in November 1995, used antiquated technology.

It turned out that till 1993, DoT was reportedly purchasing TWF and Thermo Shrink Filled (TSF) kits. Later, DoT appears to have approved a new technology called Reinforced Thermo Shrink Filled (RTSF), which was stated to be far superior to both TSF and TWFtechnolo-gibes. Of course, in its public issue offer document, GEL had claimed that the TWF technology was superior to both TSF and RTSF.

The Sukhram connection was cited for GEL managing to get both TWF and RTSF telecom kits priced at par, though the latter represented a higher level of technology. Also, GEL's high connection was alleged as the reason for the Telecom Commission actually reserving 25 per cent of its kit purchase for the TWF family, on the contentious grounds that "in certain areas, the TSF kits are being attacked by termites and cause failure of joints".

Expectedly, the company may deny its proximity to the corridors of power. All the same, the calculated shifting of its corporate office from Secunderabad to New Delhi, as evidenced by BSE's official directory, only reinforces the public doubt. Moreover, there is no denying the fact that GEL had a knack for winning government/PSU contracts away from its area of core competence. For instance, the company was shortlisted for a Rs 30-crorecontract for printing, publishing and supply of 1997 telephone directories for MTNL, Mumbai. As if this were not enough, the telecom-kit supplier was also preferred for a Rs 18-crore contract for the supply of railway concrete sleepers. Given such an unsavory background, the sudden upsurge of GEL's share price is certainly of more than curious concern.

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