It was but natural for cement stocks to rise along with the rise in cement consumption since April. Many frontline stocks have witnessed hectic buying and even second-rung stocks have moved up sharply in the last few weeks. In bad times, the industry consolidated itself and capacity additions slowed down. With a new government likely to be in place soon, expectations are high that infrastructure projects, and consequently cement demand, would pick up.Among the low-priced stocks, Prism Cement is one which merits attention. It operates a 2 million-tonne plant from the Satna cluster in Madhya Pradesh, in technical-cum-financial collaboration with FL Smidth, Denmark and the Industrialisation Fund for Developing Countries. The plant commenced production in August 1997, a year later than what was promised in the public issue, but the heartening fact was that the cost stood at the original Rs 615 crore. Another heartening fact is that even in bad times, when there were buyers scouting around for cement plants,the promoters did not sell out.
Satna cluster being very close to UP, Prism sells 70 per cent of its products in Central and Eastern UP, 20 per cent in MP and the balance 10 per cent in Bihar. During April-June 1999, the growth in consumption in UP was highest at 52 per cent compared to the all India 24 per cent. Another factor in Prism's favour is that it meets its entire power generation through its 30 MW generating capacity. This, the management claims, works out, cheaper by about Rs 1.40 per unit.
Power is an important cost component and hugely impacts project profitability. Assuming it operates at 90 per cent capacity and produces 1.8 million tonnes of cement during the year, it could save Rs 20 crore on power costs alone compared to any other cement manufacturer.
Demand outlook is promising. Says V Ramanan, analyst at BNP Prime Peregrine, "There will be maximum growth in cement prices in the North from the year end, as no new capacity additions have been announced there." so Prism's sales profileassures it a selling price hike. Even today, compared to March 1999, when UP sales were at Rs 110 to Rs 122 per bag, prices are up by Rs 3 to Rs 5 per bag.
The turnaround has started. For the first quarter, on sales of Rs 91.39 crore, Prism posted a net profit of Rs 52 lakh. Looking at the buoyancy in the cement sector it will manage a turnaround in the current year. Already, the stock price has moved up from Rs 6 in the month of May to current levels of Rs 16. The big drawback is that Prism is carrying forward losses of Rs 80 crore. This will be a hurdle in initiating future expansion plans and will probably inhibit dividend payments for two years.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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