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G. Madhan

THE fixed deposit programme of India Cements is appropriate for investors with a penchant for risk. Given the attractive interest rates and the expected benefits from its debt restructuring efforts, an investment up to one year can be considered. Longer tenures, however, can be avoided given the higher financial risk involved.

Scheme and features: India Cements offers cumulative and non-cumulative schemes. The minimum deposit for both is the same at Rs 21,000. The interest rates are also the same for both the options. The interest rates for various tenors are 8 per cent for one year, 8.5 per cent for two years and 9 per cent for three years.

Since the interest is compounded at monthly intervals, the annual yields for the cumulative option are 8.3 per cent for one year, 9.23 per cent for two years and 10.29 per cent for three years. Interest on the non-cumulative option is paid at quarterly or monthly rests. Further details can be had from the company's registered office at Dhun Building, 827, Anna Salai, Chennai - 600002.

Financials: India Cements, a major cement manufacturer, is in the process of recovering from the debt burden it accumulated to fund its acquisitions in the late 1990s. Its earnings have remained in the red the last three years.

The reduction in the interest cost following the debt restructuring, however, appears to have helped it to cut losses. In FY-04, the net losses were down to Rs 96 crore against Rs 201 crore in FY-03.

The trend has continued in FY-05 as well. For the April-June quarter, it posted a post-tax loss of Rs 18.1 crore against Rs 19.1 crore during the same period in 2003. On the revenue front, the rate of growth was slower at 4 per cent to Rs 263 crore.

The drop in the revenue growth is due to the 10 per cent decline in volumes on the back of lower demand in the southern parts of the country. India Cement's debt-equity ratio was at 1.25 on March 2004 against 2.8 in 2003.

Business prospects: In the near term, the company's revenue growth may remain subdued, given the demand-supply dynamics in the southern markets. The Government's thrust on rural economy may improve the demand scenario and, in turn, the company's revenue prospects.

India Cements' focus on the export market may also aid the revenue growth. Earnings, will, however, continue to be hampered by the debt burden.

Suitability: This FD programme is only suitable for those investors with a high-risk appetite. The returns under this scheme are not substantially higher than that offered by safer options such as the post-office monthly income schemes.

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