The apparent basis for the unusually high expectation was the good first quarter performance, during which the company reported a 86 per cent growth over the corresponding year's first quarter to Rs 9.27 crore. Thus, the expectation was that the company would earn at least a similar amount in the second quarter. But the assumption was proved wrong, as the second quarter ending in June is generally a weak one (being peak summer) for chocolate confectionery products.

But despite the stock markets' unenthusiastic response to what is otherwise considered a good performance (the stock lost Rs 100 or 11.5 per cent in just threedays), analysts say that as far as the rest of the year is concerned, the best is yet to come.

Analysts feel that the company will report a full year's PAT of Rs 38 crore. According to Ayaz Motiwala, equity analyst with Inquire Equity Research, the third quarter bottomline should show at least a 40 per cent growth over the last year." Analysts feel that growth in profits to a significant extent is being pushed by improving price realisation in a number of chocolate product segments, as well as due to the strong growth in the sugar confectionery market.

The potential of the sugar confectionery business can be seen from the fact that despite a hefty price hike, volumes grew by 5 per cent last year, taking revenues from the segment up by 20 per cent. The success is being attributed to the recently-adopted mass marketing strategy, plus the repositioning of several brands, especially in the food drink business, which has resulted in an all-round improvement in margins.

The improvement in the stock price hascome about both as a result of the growth in the EPS as well as due to a higher p/e multiple now being attached to the stock, which has been far higher that the p/e multiple attached to its competitors, Nestle and SmithKline Beecham Consumer's stock. "Despite the gap between these stocks, there is room for further growth in Cadbury's p/e multiple," feels Motiwala.

And this multiple is clearly linked to Cadbury's above-average growth rates. With very little incremental capital expenditure left in the current year and next financial year, (amounting to just Rs 15 crore) there is also a lot of room for improving the return on equity and more importantly, the return on capital employed. In the last couple of years (during which there was some capex) the RoE was in a band of 15 per cent, which has since improved to 20 per cent. Last year, the return on capital employed hovered below 20 per cent.