In the first quarter, the company reported a doubling of sales on the back of very strong growth in the order book. The company's order backlog at the start of the current financial year was Rs 96 crore, with substantial business going to the hydel power division. Against this back drop, first quarter income soared by 80 per cent to Rs 34.6 crore, but operating margins were sacrificed. Margins practically halved from 20 per cent to 10 per cent. For sometime now, the company has held the switchgear and alternators business responsible for the fall in profitability, given the intense competition in the businesses from multinational companies, which continues to keep realisation low. As a result, despite the sharp rise in the topline stemming from high volume growth, the bottomline could not keep up. Infact, the profit before tax was down by 50 per cent.

As a consequence to its recent performance, the company has decided to jettison a number of peripheralbusinesses that contribute little or nothing to revenues and profits but consume resources. However, these are small businesses with little investment and will not yield much by way of cashflow to the company. It makes sense to concentrate on its core businesses. A number of hydel power projects have already been conceptualised. However, the only problem with the hydel power business is the long gestation period for these projects, running into 5-7 years, which means that the beneficial impact of these orders on revenues and profits will occur much later.

The positive aspect for Jyoti is its order book position and the fact that the profitable segments are beginning to show faster growth. Increased spending on infrastructure will also translate into additional business. But, for the market to start discounting this development, the company will need to show a better run of profits, an improvement in the cash flows and a quick return to the dividend list.