Cement consumption grew at a rate of 9 per cent last year, while demand for cement in Tamil Nadu, a key market for Madras Cements Ltd, fell on account of heavy rains which put a hold on construction activity. The dent in the bottomline came from the Alathiyur plant which funded out of debt caused interest costs to more than double to Rs 778 million with depreciation too higher at Rs 419 million.

To add to the company's woes was increased supply in the region leading to a surplus situation in South which did not allow higher costs to be passed on to the customers. The breakdown ofits Jayanthipuram plant besides causing a loss of a months production, also added to freight costs as clinker had to be sourced from another plant.

The company is also facing increased threats of due to growing competition. The formerly deficit region of south has metamorphosised into a supply surplus region due to capacity additions by L&T, ACC and the entry of GACL which has further aggravated the countrywide surplus situation. MCL also has to now live with a highly competitive market and must change its strategy to deal with same.

On the other hand the company has several strong fundamentals that will aid it to hold out in the ongoing consolidation in the cement sector- Technological superiority resulting in low costs of production next only to Gacl. Profit realisation at Rs 419 per tonne is among the highest in the sector. Advantage of captive power in Tamil Nadu with consumption of 90 units as against industry average of 110 units in the country.

Primary concern for MCL seems to be its ability tohold out against `aggressive' moves of its largest competitor in the south, India Cements. The counter has always moved with the markets in line with the cement sector. The current market price of the stock is at Rs 3466 with a price to earnings multiple of 12.54 and a 52-week High/low of 9595/2876 with a market capitalisation of Rs 4,159 million.