In the last couple of weeks, it has seen a consolidation of those gains following a normal correction. The company reported a first half profit of Rs 17.4 crore as against Rs 7.5 crore for the corresponding first half last year and Rs 13.5 crore for the whole of the last financial year. The profit figure would have been much higher, had it not been for write-off against NPAs amounting to Rs 18.8 crore.

The Q2 result from SRF continued the improvement seen in the first quarter with an acceleration of the growth in profit, though there has not been much topline growth. Profit after tax was up by 125 per cent y-o-y. There was an improvement in the PAT quarter on quarter as well by 160 per cent.

The company's restructuring began a couple of years ago with the sale of its investments in unrelated businesses and companies; with the latest sale being that of Shriram Bearings a little over a month ago. This produced the cash for the company to acquire new capacities, especially in nylon tyre cord, consolidating its hold in the industry. Its latest accquisition is a 6,500 tonne nylon 6,6 unit from Dupont Fibres Ltd, an EI Dupont subsidiary. This acquisition will enable the company to cater to the radial tyre manufacturers. The restructuring also saw it offload stakes in SRF Nippondenso, SRF International and shed other investments and divisions.

SRF's biggest problem over the years is its remarkable collection of debt. Its main operations were in businesses that were remunerative and yielded a decent operating margin. However, this margin did not reflect in the profit after tax (it reported an operating margin of 26.7 per cent but a net margin of just 3 per cent) as a result of very high fixed costs. The return on capital employed barely hovered around 10 per cent. In the last financial year, interest cost absorbed 67 per cent of the operating profit. The funds raised at the time had not gone into repaying debt. Instead, a large portion of these funds continued to find its way to group companies either in the form of advances or equity. Therefore, despite taking corrective action in jettisioning non-core businesses, it did not use the funds so generated productively.

However, things are slowly changing for the better, even though there are no signs of the inter-group investments easing. There have been improvements in volumes, as well as selling prices which has shown up in the Q2 performance. Operating margins are up by one and a half per cent over last year.

The situation has not been very different in the latest quarter as far as interest costs are concerned, having declined only marginally. However, the first quarter had seen a steep decline in interest resulting in a 15 per cent fall for the first six months. Interest costs still consume around 60 per cent of the operating profit for half year.