• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Vaidya Nathan

INVESTMENTS can be considered by those with a penchant for high risk in the stock of India Cements to capitalise on the steady improvement in its fundamentals.

Business Line had taken a similar view in early July this year when the stock was trading at Rs 23*; it has risen by about 70 per cent since then.

Conservative investors who had picked up the stock at the lower levels of about Rs 15 can contemplate booking profits. This represents a continuation of our stance on the stock.

There is still scope for appreciation linked to likely improvement in its earnings card and the possibility of efforts to strengthen the equity base. The latter may also involve induction of a strategic partner.

The company has neither made an announcement nor provided any indication to this effect. It has a sizeable debt burden even after the restructuring package provided by the lenders.

There is also the massive interest and principal repayment that beckon a few years from now. It is in this backdrop that we hold the view that there may be moves to shore up the equity base. The latter may also be necessary to pursue growth opportunities as India Cements has shed sizeable capacity over the past 18 months to cut its debt and has no room to use debt for this purpose.

It may also provide it with the added muscle to battle competition from much stronger players such as the combines of Grasim-L&T and Gujarat Ambuja Cements-ACC and the regional bigwig, Madras Cements.

India Cements now has the flexibility to make a move in this regard at a time of its choice as the restructuring of its debt has led to a reduction in interest costs. Any such effort at strengthening the equity base would be a positive for the stock.

In two of its key markets — Tamil Nadu and Kerala — there has been an increase in cement prices over the past few months. The firm undertone is set to continue, backed up by demand from the housing sector.

The demand-supply balance, however, is likely to improve in the South only over the next two-three years. This may exert pressure on prices if demand declines and/or producers raise their operating rates.

Aided by higher cement prices, there has been an increase of about 20 per cent in sales in the July-September quarter.

India Cements has managed to cut its losses over the past two quarters even if one does not factor in the reduction in interest cost.

If the trends in the latest quarter continue, which appears likely, the company may well have a coat of black on its earnings card towards the end of FY 2004.

Article E-Mail :: Comment :: Syndication

Stories in this Section
NSDL: Non-cash corporate actions

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line