While sales showed a growth of 159 per cent to Rs 70 crore, net profit rose by 366 per cent to Rs 30.74 crore. The jump was made possible with high profit margins, which have risen from 33 per cent to 58 per cent.Looking at these results, the recent fall appears unfair. However, one has has to consider the fact that prior to the announcement of results, the stock had risen from Rs 270 to Rs 450, which was mainly driven by expectation of good results in the first-quarter.

With the company meeting market expectations, those players who took positions earlier, seem to have made an exit. The depressed market condition also had its impact. While the recent fall may been very sharp, the fundamental outlook continue to look promising for this compact disc (CDs) manufacturer. The company has a capacity to produce 150 million CDs annually. The exports sales account for nearly 90 per cent of total sales. While the sales of CDs account for nearly 70 per cent, the rest of revenue come from floppy diskettes business. The recent acquisition of Luxemburg's Copco SA also augur well for its export markets.

The demand for CDs is likely to grow at a healthy rate, and being a cost competitive player, the company will be able to take the full advantage of rising demand. To meet the rising demand, the company also plans to expand its capacity to 760 million CDs in the next two years. The company has recently placed shares to International Finance Corp, and affiliates of EM Warburg Pincus and Co. on preferential basis (at a premium of Rs 327 per share), and raised Rs 293 crore. This fund would be deployed to finance its expansion plan.

Overall, with sufficient fund to finance its project, and a strong demand for CDs, the company will not find it difficult to repeat its first quarter performance and in which case, the market will have no reason to complain. While the fundamentals appear favourable, the latest drop in stock price has affected its technical position which is equally important in today's volatile markets.

With the latest fall, the stock has broken its short-term base of Rs 400. And the next major base for the stock is at Rs 260, and below this level, the medium term outlook will weaken. On the upper side, unless the level of 430 is crossed, one should avoid fresh buying.Deepak Singh Tanwar