The offer price is also at a significant discount to Indo Gulf's book value of Rs 107 per share.

As a gas-based producer with a depreciated plant, Indo Gulf is among the lowest cost domestic producers of urea.

Given the good initial leg of the monsoon, 2003-04 could prove to be a much better year in terms of fertiliser offtake. It would be reasonable to expect an improvement in Indo Gulf's financial performance in the 2003-04 fiscal.

The industry has recently switched over from a cost-plus subsidy system to a group-based flat subsidy.

This transition could lead a downward revision in unit realizations in 2003-04. But for Indo Gulf, this could be more than offset by better volumes and benefits from the ongoing cost-cutting exercise.

The recent transition to group pricing is likely to lead to the shutdown of high-cost capacities. This could pan out in favour of producers such as Indo Gulf who may be in a position to garner a larger share of the market vacated by the high-cost players.

But with a more stable policy environment and an improvement in prospects, an upward re-rating of select stocks appears very likely.

Therefore, historical price trends or the PE ratio of this stock may provide an unduly pessimistic view.

There appears to be just one risk factor associated with the stock for those who do not tender to the open offer.

As the flagship fertiliser company in the Aditya Birla group, Indo Gulf Fertilisers may bid for stakes in the fertiliser PSUs which are set to be divested. This could call for significant financial outlays.

However, given its cash-rich status and zero-debt balance sheet, this is not a concern that Indo Gulf cannot tide over.

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