Despite the positive display during the year, the rate of growth has slowed down, and for 1997-98, the revenue growth rate was just 15 per cent. Profits are, however, another matter altogether and have plummeted from Rs 7.44 crore to Rs 4.8 crore.

The anticipated jump in revenues from the new cement plant did not come through as the plant was commercially operational for only March 1998. The company had planned its 1.98-lakh tonne cement capacity at a time when there was a boom in cement prices, and ithad sought captive capacity. It also intended to participate in the boom. Unfortunately, the capacity is being commissioned at a time when the cement market is facing a glut and prices are no longer remunerative for a start-up unit. Second, the plant size is uneconomical by new industry standards (one million tonnes is considered an economical size) and the company's own cement consumption is minimal, thus exposing it to price fluctuations in the open market.

Two years ago when the company was looking for assets to park its large internal cash generation it had decided on a wind farm as an alternative, primarily owing to the available depreciation benefits. But even here, there have delays in start-up, hurting cash flows. Its cash flows have turned negative in the last two years, and have been buoyed by large borrowings, pushing the debt-equity ratio to 2:1. But the basic business that provided the positive cash flows in the first place and made it attractive to investors remains strong. In fact, whateverrevenue growth the company is seeing at present is from the project-construction division. As part of its growth plans, the company has hinted at expanding into infrastructure building. Its construction business has Rs 260 crore worth of orders on hand.

The company was not expected to be a performer, but it has still managed to surprise. Though the wind farm still flounders and the full impact of the cement business is being felt in the current year with a huge rise in fixed costs, especially in interest expense, there is a strong chance the current year would be much worse. In addition, there is a constant threat of equity dilution plaguing the stock, as the management is desperately looking for ways to reduce its ballooning debt. A proposal for a rights issue made last year at Rs 15 has been withdrawn, given the pathetic state of the stock, which a couple of years ago commanded a market capitalisation of Rs 75 crore. The current market cap is Rs 9 crore, against a net worth of Rs 66 crore and total assetsof Rs 195 crore. Instead of the rights issue, the promoters have decided on a preferential offer of shares to themselves, the effect of which will be the same.

Jaiprakash Industries:

This is yet another company that had diversified into cement in a big way as a prudent backward integration, but has now reverted its focus on its core business of engineering and construction. Over the last couple of years, the company's performance has been greatly hampered by its poor cash flows and its constant need for large amounts of working capital. Almost half its balance-sheet size of Rs 2,085 crore is invested in working capital. It has recently proposed hiving off its hotels business to try and raise cash, which should go towards partly reducing its Rs 1,227-crore debt.

The company is basically an engineering concern and even now more than half of its Rs 640 crore in revenues comes from this business. The area of expertise it has developed for itself over the years is in setting up hydroelectric powerprojects. This business also has the biggest potential for growth, as it has pending orders worth Rs 4,000 crore, and a number of projects under execution.

The cement business has a 2.5-million tonne capacity, but operates at barely half of that (the industry norm is 85 per cent capacity utilisation). The stock market has been oblivious to this stock for a very long time, but that is because it will take a long time to even hope for earning a decent return on its investments.