On November 13, 1998, wily takeover tycoon Rama Prasad Goenka's RPG Group unloaded its entire holding in BIL. It had a 7.4 per cent stake, or 1.19 lakh shares (paid-up Rs 100 per share), in BIL, a 51 per cent subsidiary of German multinational Bayer AG. The disinvestment is estimated to have fetched the company about Rs 18 crore. The RPG move is believed to be in line with the recommendation made by its international management consultant, McKinsey, to shed the group's non-core businesses and concentrate on its core competencies of tyre, power and telecom.

Five funds, one domestic and four foreign institutional investors (FIIs) of whom three are reportedly US-based funds and one a Hong Kong-based fund, appear to have picked up the BIL shares from the RPG group. In the post-RPG saga on the bourses, activity has moved up considerably at the BIL counter, with both the price and volume picking up steam.

On the BSE, the average volume was languishing at below 60 shares a day in September and October 1998. But after the RPG deal, the average suddenly doubled to about 118 shares in the second half of November. The growth in volumes spurted further in December when the average turnover was placed at 602 shares a day. Price-wise, the BIL scrip has, from Rs 1,419 at end-October, moved up to the present level of Rs 1,996 a share -- a gain of over 40 per cent.

The trend on NSE, too, was not very different. The average daily volume, which was below 100 shares between September and October, climbed to 141 shares in the second half of November and then spurted to 354 shares in December. The scrip has recorded a gain of Rs 557 apiece over its October closing of Rs 1,410.

Interestingly, news of the RPG group's exit from BIL came just after the company announced its much-improved performance for the third quarter ended September 1998 on October 29. After recording an increase of just 10 per cent in the profitability to Rs 7.99 crore during the first six months of 1998, BIL got into top gear during the third quarter, adding an impressive Rs 6.77 crore to the bottomline. In terms of turnover, too, the third quarter represented a watershed, witnessing an addition of Rs 175 crore as against the Rs 236 crore recorded in the first half of 1998.

Most importantly, the recent performance bucks the general trend witnessed in the last two years, when the second-half profit at the net level was lower than the first half. Thus, the first nine-month report card of BIL for 1998 reads thus: Net profit of Rs 14.76 crore on a turnover of Rs 411.41 crore. Compare this with fiscal 1997's turnover of Rs 483.37 crore and net profit of Rs 9.84 crore, and one of the causes for the new-found interest in the scrip becomes visible.

On an equity of Rs 16.22 crore -- which has remained unchanged in the last 10 years -- the last reported net profit translates into an annualised earning of Rs 121 per Rs 100 paid-up share. This earning per share (EPS) discounts the current market price just over 16 times.

While Bayer AG holds 51 per cent in BIL, financial institutions and FIIs/domestic funds are believed to hold about 33 per cent stake between them. Consequently, the public shareholding in BIL is about 16 per cent, or 2.60 lakh shares, distributed among 11,000-and-odd shareholders. Thus, the average holding per public shareholder works out to less than 24 shares. Over the years, such a low per capita shareholding appears to have been the bane of trading interest in the counter.

Against this backdrop, it is difficult to believe that small investors have been raiding the BIL counter only on the basis of one good performance. A more plausible reason for the recent increased interest in the scrip could be that FIIs, after having had a foothold in BIL, are consolidating their holdings through market acquisitions. If market grapevine is to be believed, certain well-informed brokers have been warehousing the scrip for the FIIs' consumption at a later date.

From an operational standpoint, despite its 100-year-old history and solid German parentage, in the past BIL was just plodding along without any sense of direction. In fact, between 1988-89 and 1997, though the turnover moved up from Rs 163.2 crore to Rs 483.4 crore, the pre-tax profit barely moved from Rs 14.9 crore to Rs 15.2 crore due to the consistent slide in margins. What's more, in between, BIL had many forgettable years.

It was only in the mid-nineties that the foreign parent decided to bring BIL back into shape. First, it cut BIL's work force by more than one-third via a voluntary retirement scheme (VRS). Next, Bayer AG decided in 1996-97 to transfer its international pharma products to BIL. The parent attributed its hesitancy to the lack of intellectual property rights in India. However, just when it appeared that BIL would clock a new level of growth on the back of its parent's pharma brands, the German multinational did an about-turn. It stripped BIL of all the hot pharma brands like Ciprobay, Glucobay Resochin, Canesten and Adalat and transferred them to its 51:49 joint venture with the Ahmedabad-based Zydus group.

For BIL, therefore, it is back to square one. In future, it will have to achieve growth through its agrochemical and rubber chemical products, which contributed 66 per cent and 19 per cent to the turnover in 1997. In 1997, while BIL's rubber chemical division witnessed negative growth in turnover due to a downtrend in international prices, the agrochemical division registered an impressive growth. Thankfully, however, the current year has been a better one for the company, characterised by increasing margins and offtake. Nonetheless, the real profit driver should be the pharma segment, which, as per the changed scheme of things, is no more the domain of BIL.

With India on the verge of legislating on patents, Bayer AG's international pharma products could rain money for the group. At least, that is what the institutional buyers of the RPG stake in BIL must be hoping for. Will the overseas parent disappoint its foreign bulk enthusiasts? The Bayer-watch is moving to be an international attraction.