The variation has been partly at the operating level, but has also been largely felt as a result of a hefty increase in interest cost as well as a tax provision, which cumulatively took care of the expectation and ensured a fall in Q3 profit to Rs 9.5 crore from Rs 18 crore in the second quarter. However, on a y-o-y basis, there has been a tremendous improvement from a Rs 13 crore loss in the corresponding period last year; but this is not very relevant, given the production cuts enforced last year.

The fall in operating profit has come largely as a result of a decline in realisations owing to a change in the product mix, and due to the possibility that a certain portion of the defence supplies have been made in CKD form. The most intriguing fact is the inexplicable rise in interest cost, at a time when the cash flows have been improving.

Kirloskar Oil Engines
The strong y-o-y topline growth seen in the second quarter results from Kirloskar Oil Engines (KOEL) was absent from the third quarter where the topline has been absolutely flat. And the bottomline that was seen to be unresponsive to the topline growth in Q2 has simply worsened in Q3. The PAT has dipped by almost 50 per cent over the Rs 4.67 crore earned in the corresponding period last year. To a large extent, the dip in profits has been attributed to the poor performance of the castings division (obtained as a result of the merger with Shivaji Works).

The net profit reported for the nine-month period ended in December was Rs 73.36 crore, but is not at all comparable with the corresponding period in the previous year, which reported a profit just one tenth of that. The current year's nine-month net profit is a function of the surplus on sale of investments amounting to Rs 63.34 crore. But even after removing the effect of the extraordinary income, the performance for the third quarter appears to be worse than the earlier quarter's performance. The KOEL stock has also lost almost 50 per cent of its peak price of Rs 68 seen in the second quarter.

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 continues to be heavily leveraged. However, interest costs which began to fall from the last quarter of the last financial year continued to record a decline well into 1999-2000. It was earlier seen that the funds raised from sale of investments continued to be used to bail out sick group companies, funding losses or are being put into its newer ventures.