The impact of all these development was predictable and can easily be reflected in stock price. The stock has been on a upswing since past two months and has appreciated by more than 70 per cent to Rs 123.

While the recent jump in stock price appears very sharp, the stock can get a further boost provided some development takes place. As per the industry sources, the company is expected to get Rs 600 crore loan from the Steel Development Fund (SDF) account. This loan is at extremely low rate of 3 percent and would be used to finance the Rs 1,600-crore cold-rolled mill project.

Although, the finance from the SDF is nothing but Tisco's own money which has been given by the company in pre-liberalisation era. This is the second time when SDF is expected to forward loan to a corporate. Undoubtedly, low cost finance would help Tisco in a long way.

The project cost of Tisco would also be substantially lower than that of similar CRM project. The company is planning to shift the Tata-SSL CRM mill to Jamshedpur. Apart from reducing the capital cost, freight cost would also get reduced because at present the company's HR was transported to Tarapur and then sold in various markets. With this activity being transferred to Jamshedpur the company would save on freight margins. There would be some transfer of cash from Tisco to Tata- Special Steels for the sale of CRM plant by the later to the former. But since the original project cost was mere Rs 150 crore, the possibility of cash outflow being more than Rs 100crore is quite doubtful. But simultaneously the savings could be close to Rs 1,000 per tonne, which would more than compensate for this outgo in the next two-three years.

Thirdly, a possible factor that can provide boost to the company's cash flow is sale of its stake in Tinplate. According to industry sources, the company is in talk with Japanese companies for sale of their stake. An exit from loss-making business is a welcome move and help the company in long run. And the market would not have any option but to react positively.

Arvind Mills

Arvind' stock touched a 5-month high at Rs 42 on Wednesday. The average trading volume also touched a 8-month high. Improved market sentiment seems to be partly responsible for renewed buying force. Another factor which could have helped is the reports that the company is making a shift to gabardine, the emerging market which has affected the demand for denim worldwide.

News reports suggest that of the total denim manufacturing capacity of 120 millionmeter per annum, 36 million meter capacity is being shifted to to manufacture gaberdine. Another factor which favoured the rally was the fact that all the negative news-including a glut in the denim market-was fully discounted by the market. Fundamentally, the stock was quoted at its least possible levels. Last month, the stock had touched its decade low of Rs 31. At that level, the book value to stock price ratio had fallen to a level of 0.25. At the same time, as a result of sharp fall in price, the yield per share had also risen to 8 per cent. The price to earning ratio had also fallen from a peak of 15 during 1997 to as low as 3.

Such a sharp decline in market value of Arvind was mainly attributed to decline in fortunes of denim market in India as well as abroad. The high growth has attracted a large number of players, making a domestic denim market crowded. The impact was directly on margins of existing players like Arvind. The trend in international market was also similar partly due to a shift indemand towards gabardine. Problems further compounded due to higher cotton prices. The average cost of cotton rose from Rs 44 per kg in 1996-97 to Rs 46 per kg in 1997-98.

The state of affairs can be mirrored in financial performance of the company. After maintaining a sales growth of more than 21 per cent for six years between 1991-90 and 1995-96, sales recorded a meagre growth of 7.53 per cent in 1997-98. Exports also dipped by two per cent during 1997-98.Performance was equally discouraging during 1998-99. Sales during the first quarter of 1998-99 stood at Rs 209 crore and operating profit margins stood at 18.17 per cent. The results in the second quarter were more or less similar expect sales showing a 23 per cent jump over the first quarter. Sales during the second quarter stood at Rs 261.01 crore, and margins on the operational level stood at 15.77 per cent.

Financially, the outlook for the rest of the year is more or less same. On account of new product launches, the company will maintain the salesgrowth. A shift to gaberdine will also help. But as the raw material prices are expected to remain firm, and the company still dependent on denim where prices are yet to show any recovery, margins are expected to remain under pressure. While margins are expected to remain under pressure, the current rally strengthened the stock's technical position. The stock had faced a strong resistance level in the range of Rs 36. This level now become a strong support level and the stock is expected to attracted buying support whenever the stock falls to this level.