The quick reversal despite the not so encouraging prospects for the industry this year has surprised the market. With L&T's Tadpatri plant stabilising and India Cements' Visaka plant expected to go on stream this year the increase in capacity is likely to exceed the incremental demand in South. The cement companies in the region are fighting hard to hold the prices at current levels to which they had propped in a cartel operation.

The cheap valuation seemed to be the major reason for the emergence of buying interest in MadrasCements at Rs 2800 levels. ``With a book value of around Rs 3000, the scrip is definitely a good buy with a two year perspective'' said an analyst with a Chennai-based mutual fund. He also added that cost control would be the key to profitability of cement companies in the country and Madras Cement stands the best chance in that scenario as it is one of the cheapest producers of cement in the country.

It has recently rationalised its distribution network with more emphasis on direct marketing and this move is expected to bring in substantial savings. Madras Cements has the lowest power consumption in the industry and has also brought down the coal consumption by using an optimum mixture of imported and domestic coal. Steps are also on to reduce the borrowing cost by prepaying high cost debts. The company hopes to reduce its average cost of borrowing of 17 per cent on its total debt of Rs 400 crore by at least a few percentage points thereby saving Rs 3 to 4 crore. It has brought down its working capitalcosts by replacing its entire working capital requirement by way of commercial paper. The company had recently issued commercial papers worth Rs 25 crore at a coupan of 10 per cent.

The current fiscal has also been good for the company in terms of sales. Cement Manufacturers' Association (CMA) figures reveal that for the month of April the company despatched 2.06 lakh tonnes. In May despatches where 2.61 lakh tonnes while it is expected to be around 2.30 lakh tonnes in June. The Alathiyur plant has attained full capacity and for the month of May produced 97,350 tonnes of cement as against its rated monthly capacity of 75000 tonnes.

Market players say that buying has been mostly by the retail investors while foreign institutions had sold initially. On Friday, being the last day of the settlement in BSE, the counter faced selling pressure and the scrip declined by three per cent to close at Rs 3485.