The company earned Rs 5.04 crore or almost the entire last years profit of Rs 5.65 crore in the first half ended in September 1997. Given that the company pays tax at the highest effective rate the lowering of tax rates will benefit it. The pre-tax profit will be in the region of Rs 14.5 crore or 60 per cent higher than last year.

The hike in coal prices has benefited Revathi CP (40 per cent of the stakeholding in Revathi CP is with the Atlas Copco group) a lot. Being a major supplier of drilling equipment to the coal mining industry (i.e Coal India) the company has benefited from Coal India's increased cash flows. Even at a time when Revathi CP was faced with a situation of increasing receivables and slower growth last year, its return on capital and earnings growth did not falter. Revathi CP is also one of those MNCs that follows conservative accounting policies and prefers to write off assets faster than usual.

In a year that threatened its return on funds the excess cashgenerated was used to repay much of the outstanding loans, thus not only managing to earn a return on capital of 33 per cent but also earned a higher incremental return on capital; one could easily expect the same in the current year. But despite these returns the stock relatively trades at a rather low multiple. One reason is the illiquidity in the stock that usually puts off investors and discourages the bigger funds from picking up the stock. The recent bonus of 1:1 did address this problem but not adequately. Illiquidity is the major reason why its major rival Ingersoll Rand's stock trades at a much higher multiple of 32 times. That company has given bonus issues frequently in the past unlike Revathi CP.

HCL Infosystems: Happy days

One good example of what the announcement of unexpectedly good results can do to a stock is omni-present in what happened to HCL Infosystems. For much of last year the company (that broke up its association with Hewlett Packard for its personal computers business)has raced to catch up with lost opportunities in the software business.

Throughout much of 1997 that HCL operated on its own, news reports repeatedly mentioned the intention to focus on software and the aim to derive atleast one third of its revenues from this business. This was backed by subsequent announcements of prestigious orders being received or executed. Companies like Mahindra and Mahindra, ANZ Grindlay's and government departments like C-Dot amongst others have sourced ERP packages from HCL Infosys.

But these announcements were simply ignored by the stock market. In all probability it was thought that without HP, HCL would not deliver much. Between September 1997 and Feb 1998 the stock dropped from Rs 39 to Rs 29 dipping to a low of Rs 19 in December.

Things changed once the first half results (June to December 1997) were announced. Against a marginal improvement in revenues by 7 per cent to Rs 284 crore, profit after tax improved almost five times from Rs 0.93 crore to 4.68 crore. Andsuddenly it seems that the market cannot get enough of HCL Infosystems; with the stock jumping from Rs 29 on Feb 27, the day the results were announced to Rs 83 on Monday April 6, an increase of 69 per cent.