The earnings per share was impressive at Rs 21, but the test of quality in a stock is its ability to earn a decent return on equity and on its capital employed. HI&R has been consistent in earning a good return on equity, though for 1997-98, it is lower by 1 per cent at 22.2 per cent over the previous year's figure. For the previous year, return on capital employed was 21.5 per cent, but one can safely assume that this figure too would have dipped during 1997-98. Despite deteriorating returns, the stock has begun to reflect a little buoyancy and has gained post-results.

The company's operations have traditionally been very profitable, as it has consciously stuck to the higher end or the premium segment of the printing- inks business. What it mainlydoes is make and sell inks to flexible packaging manufacturers. Amongst its leading customers are companies such as Paper Products, which in turn provides packaging to companies such as Hindustan Lever and P&G.

The company only recently started a new plant at Silvassa, which basically caters to the needs of its leading customer. In fact, the company has a strategy of producing from units located at places such as Daman and Silvassa, which provide it with backward-area benefits in the form of a vastly reduced tax liability. In the last two years, it has paid negligible corporate taxes of Rs 0.16 crore and Rs 0.07 crore respectively on PBTs of Rs 8.50 crore and Rs 9.82 crore respectively.

Construction companies' performance: It has been known for some time now that there has been an increase in cement consumption particularly in the southern region of the country and the reason for that has been accepted as an increase in demand from the housing-construction sector. This fact has been partlycorroborated by the increase in disbursals from housing-finance companies both by the annual as well as the first-quarter results.

Now two consecutive sets of results from south-based construction companies have furthered this hypothesis that there is a boom on in certain parts of the country in housing construction. Nagarjuna Constructions, a Hyderabad- based company has reported a 17 per cent increase in revenues to Rs 153 crore, and an increase in operating profits. But this company has a significant exposure to the institutional sector, whereby it sets up large complexes for corporates and government bodies either at project sites or for housing colonies. But it is also the exposure to this bulk (institutional) segment of the business that has hampered cash flows though it has provided a lot of business (the company has reported that its order book has increased to Rs 177 crore from Rs 147 crore).

The strain on cash flows and liquidity was obvious, as it had to resort heavily on borrowings (last d/eratio was 2.14), which pushed up interest costs by 28 per cent to Rs 8.32 crore (that too in a year that saw conversion of its PCDs into equity). The increased borrowing costs has pushed down net income by 34 per cent to Rs 4.94 crore, from Rs 7.45 crore.

But the company has responded positively despite the pressures on its cash flows by pegging its dividends at 20 per cent (on an enhanced equity base).In the case of IVR Constructions, the figures look much better. Revenues are up by 68 per cent, while net income has increased by 82 per cent for 1997-98. The difference here is that IVR Constructions' housing- construction business is targeted entirely at the retail segment. The company has recorded a much steeper increase in interest costs, but it has not dented net income in the manner seen by NCC, and here too, the payout to shareholders has more or less been maintained. The stocks of both these companies have responded favourably to the performances, which have been above expectations. In IVRConstructions' case, there has been a dramatic improvement in the return on equity from 14 per cent to 21.5 per cent for 1997-98. But the returns on capital employed are still poor.