In the previous year, sales declined by 1.6 per cent. However, this was mainly on account of an additional capacity. The company's capacity has been raised by 25,200 spindles to 1,38,816 spindles. As such, the 15 per cent growth in sales was more on account of higher capacity.

However, the company failed to maintain its operating profitmargins. With a 10.44 per cent jump in operating profit, margins on the operational level declined from 15.10 per cent to 14.50 per cent. Pressure on realisations coupled with higher cotton prices seem to be the main reason.

Profit at the net level however was up by 40.55 per cent to Rs 15.93 crore. This was mainly on account of a three-fold jump in "other income" component. The portion of other income as the percentage of pre-tax profit (PBT) increased from 9.98 per cent to 25.41 per cent.

In fact, profit margins were lower in the second half. Although the last two years' results indicate that margins remain low in the second half, the fall during 1997-98 year has been steeper compared to a fall in the previous year. During 1997-98, operating profit margins were down from 16.27 per cent in the first half to 12.75 per cent in the second half. During 1996-97, this fall was from 15.27 per cent to 14.96 per cent.

As far as the future is concerned, the demand has not shown a significant turnaround. Thoughthe full impact of the expansion would be felt in the current year, realisations are expected to remain under pressure. On the export front, though demand has not been very encouraging on account of the Asian crisis, the drop in the value of rupee will provide enough cushion. As such, on the surface, the reasons for the increased demand for the shares of the company are not visible. This hints at an involvement of speculative elements or the market is privy to some important information. Rumours suggest a bonus issue. For the past nine years, the company has not rewarded its shareholders with a bonus issue. The company has a strong book value of Rs 205. In the circumstances, believers in efficient market theory can remain invested.

Buy-back and markets

The Sensex has gained 155 points in the last three trading sessions. The newborn optimism is mainly on account of hopes that buy-back will be allowed very soon. If the buy-back is allowed, the announcement will give a major boost to values simplybecause there are several managements who feel that their companies' shares are undervalued. Given a change, these companies would buy-back their own shares. But more than a jump in the values, the announcement will give a major boost to sentiment which at present is at its nadir.

The sentiment boost is much more important than anything else. Presently, several companies are available at attractive valuations, but investors have put their buying plans on hold. And the culprit is none other the negative sentiment. Once the sentiment turns positive, investors would definitely come forward. But expecting a complete turnaround on the announcement of buy-back would not be fair. For a long-term revival, the market requires political stability and growth in earnings which at the current juncture appears unlikely.