Poor results in the March 2013 quarter and the controversy surrounding the arrest of Gurunath Meiyappan have seen the stock of India Cements correct sharply over the last week. The stock has fallen 17 per cent to Rs 68.70.
But, does the controversy over IPL warrant a correction in India Cements’ stock? Is CSK critical to India Cements’ finances? Not really.
To the company’s full year revenue for 2011-12 (Rs 4,203 crore), income from the Indian Premier League franchise contributed just 3.2 per cent (Rs 137.3 crore). At the EBIT (earnings before interest and tax) level, the contribution was 4.4 per cent at Rs 41 crore. So, even if India Cements’ IPL franchise is revoked, it is unlikely hit to its earnings significantly.
It is true that the ownership of the popular Chennai Super Kings franchise has helped the company build a presence in new markets. Two years ago when India Cements was finding it difficult to market the output from its new 1.5-million tonnes unit in Rajasthan in north India, the CSK brand helped.
The tagline ‘Premium cement from the house of Chennai Super Kings’ on cement bags helped the company connect easily with new buyers. Now, the company has a network of 2,000 dealers in North India and it sells cement as a premium brand competing with the Holcim group.
Unlikely to impact
With a dealer network and an established customer base in place, the controversy about IPL may not significantly impact its cement sales. Even if sales do get impacted, overall revenues may not take a big hit as southern markets still make up over 75 per cent of India Cements’ revenues. As far as the southern market is concerned, the company is a well established player and the CSK link doesn’t make a difference.