The recent trend of improving margins has continued into Q2 as well. Operating margins were up significantly from around 11 per cent in the corresponding period last year to 15 per cent at present. But the real improvement once again continued to be its interest costs. Interest outflow fell by 15 per cent and contributed to almost 25 per cent of the incremental profit before tax. And thanks to both higher margins, higher volumes and lower fixed costs, profit after tax was higher by almost 90 per cent, despite a sharp increase in tax provision. For the first half as a whole the profit after tax is up by 65 per cent. The company began the year with an order book of Rs 80 crore and the bulk of its revenues (60 per cent) comes in the second half, thus the growth seen in the first half should accelerate. The major move in the stock has just begun, several quarters after the company began its financial turnaround. Following the announcement of the latest results, the stock has been hitting the upper circuit withunfailing regularity.

Kirloskar Oil Engines

On the other hand, despite the pre-result rally in the KOEL stock, there was very little in that company's performance for the shareholders to cheer about. Despite strong topline growth, there has been little response in the bottomline. Net profit reported was Rs 67 crore but is not at all comparable with the corresponding period in the previous year, which reported a meagre performance. But the current year's net profit was a function of the increase in other income to Rs 69 crore, of which extraordinary income amounted to Rs 63.3 crore. By removing the effect of the extraordinary income, the performance for the second quarter would have resulted in a far lower profit.

This continues to be the state of affairs at KOEL which has been hiving off its financial assets ,but there are few signs that it is being used to restructure its business, which is heavily leveraged. Incidentally ,the trend of falling interest costs from the last quarter of the last financial year which continued into Q1 this year has reversed. Initially, funds raised from sale of investments continued to be used to bail out sick group companies or are being put into newer ventures.

The rally that preceded the results was in part due to the sale of the company's remaining holding of Cummins India. It is also reminiscent of the market expectations the last time around when a large block of Cummins India shares were sold to the US-based parent company. But whether or not the company utilises the latest tranche of funds to restructure its operations or whether shareholders will be disappointed again, remains to be seen.