The stock has already shed 31 per cent from Rs 850 in early March to Rs 550 by March-end. An entry below this level can bring good returns provided the stock is held for a period of 2-3 years. There is also room for a small rally in the short-term in anticipation of the fourth-quarter results and the general euphoria in the market in April. However, those looking for a quick buck, this is not the counter for you. What sets CMC apart from other IT companies is the government control and the consequent lack of flexibility in decision-making. This is probably why CMC is not considered a front-runner on the bourses despite having a good mixof both the software and hardware business. What will, however, stand the company in good stead in the years to come is its large exposure to the domestic market -- an anathema, at present!

``With orders from the US expected to stagnate in the coming 1-2 years, IT companies will be forced to look at the huge untapped potential in the domestic market. At present, the PC penetration in India is less than 2 per cent, which is estimated to grow to over 7 cent in the next two-to-three years. And, once E-Commerce gets underway in India, a company like CMC can hope to rake in millions,'' says Parag Dalvi of Pranav Securities.

Other positives include a restructuring of employee compensation to combat the problem of high attrition, initiating cost-cutting measures to improve margins, the leverage to win large government contracts and a dilution on government control after the proposed rights issue. The government currently holds 83 per cent and proposes to bring it down to 51 per cent. Says Milind Karmarkar, headof research at Dalal & Boracha, ``The scenario will change once the government dilutes its stake in CMC in favour of a strategic partner.''

Targeting the hitherto-neglected corporate sector will also add to profits in the future. The recent tieups with BaaN and PwC will come in handy for implementing ERP projects for the corporate sector. A larger contribution to revenue (about 10 per cent) from education and training will improve margins. The shift towards a new business model geared at developing and building solutions around products instead of just implementing projects will add to bottomline growth as well as help create a brandimage.

However, it will not be a cakewalk for CMC until then as at present it is skating on thin ice. A low growth rate and weak margins continue to haunt the company. Says Ashu Dutt of Dutt Stock Broking Ltd, ``CMC's growth rate is much below the sector's growth rate at 40 per cent and without other income to prop its income statement, income from operations is marginal.Besides, as 90 per cent of CMC's sales accrue from low margin government units, net profit margins are low at 3-4 per cent against the industry average of 20-30 per cent.''

In the nine-months ended December 1998, CMC earned a profit of Rs 4.19 crore crore compared with Rs 6.8 crore for the full-year in the last fiscal. This is contrary to the trend seen in most IT companies where the profit for the nine month period of 1998-99 has been far more than the full-year figure for the previous fiscal. In fiscal 1998-99, CMC should clock a net profit of Rs 10-11 crore on a turnover of Rs 330 crore.

The need of the hour is to give CMC complete autonomy so that it can achieve its objectives in a more authoritative way. The proposed rights issue is, therefore, a step in the right direction. The divestment in favour of a strategic partner will provide the much-needed thrust to CMC as it will be more flexible to the rapid changes in the environment -- both domestic and international. This should more than offset theshort-term negative in the form of an earnings dilution post rights.

CMC's diverse projects include freight operation information system for the Indian Railways, insurance application package for New India Assurance, the central depository accounting system for BSE, fingerprint analysis and tracing systems for the police forces, container handling at the Jawarharlal Nehru and Calcutta Port Trust. The company has also implemented many global projects in countries like the UAE, Germany, Malaysia, Bangladesh, Turkey, etc.

--Nandita Datta and Sunita Nagpal