Operating margins have improved from 36.28 per cent to 41.72 per cent (the company's operating margins have anyway, consistently been higher than the industry average). Other income has also grown by 28.83 per cent to Rs 15.06 crore. Gross profit has been 48.08 per cent higher at Rs 243.88 crore and gross margins have improved from 38 per cent to 43.27 per cent. Impressive performance, one may say - but all the urea manufacturers are expected to have done well in the first half.

When they exercise their option to convert these warrants, the company'sequity will bloat by another Rs 69.5 crore. This would inevitably result in lower earnings per share for the existing shareholders.

As it is, the bloated equity comes in the way of a higher market discounting for the scrip which has been languishing near its latest issue price for the majority of the post-issue period. Though there was a spurt in market prices recently to around Rs 30 per share, this was fuelled largely by rumors regarding buying by the promoters who have publicly expressed their desire to hike their stake in the company.

The scrip seems to be getting attention once again as several speculators believe that the management may opt for a buy-back of shares to increase the promoters' holding in the company. However, this may eventually never happen for two reasons. One, the company is committed to large capital expenditure programmes (a 5-million tonne refinery project, a 2-million tonne hot rolled coils project & a gas exploration project) and will therefore, be unable to fund a buy-back atleast for the next two years. Two, through the conversion of their warrants, the promoters will anyway be able to increase their holding from 29 per cent to 39 per cent.

The capex programmes have already been taking a toll on the company's cash profit as additional borrowings have led to a 66 per cent increase in its interest outgo to Rs 115.46 crore. The increase in cash profit has been just 34.68 per cent as compared to the 49.55 per cent growth in operating profit. The improvement in cash margins is only marginal from 22 per cent to 22.79 per cent. The 76.65 per cent increase in depreciation has further ensured a decline in the company's pre-tax margins from 14.56 per cent to 12.68 per cent and the 13.23 per cent increase in pre-tax profit which stood at Rs 71.45 crore has not been so impressive. The company's operating profits are likely to continue to surge in the second half but its bottomline will be under pressure during the period. Nevertheless, it will be in a position to maintain its 18 per centdividend for the year.