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Deepak Singh Tanwar and Urmik Chhaya
The Sensex on Monday was up by 91 points. However, the rally was not supported by Hindustan Lever but by Castrol, Bhel, Telco, Tisco, Pentafour Software, Satyam Computer and to some extent ITC.
Interestingly, the important feature of the current rally is the similarity in timing. Given that the current uptrend is reminiscent of the trends witnessed during the past three years when the market showed buoyancy during the first two months of the year after bottoming out during Decemeber. It happened in 1996, 1997 and 1998. And if the technical position is any indicator, the performance is all set to be repeated in 1999. The next technical resistance for the Sensex is at 3250 points.
Fresh fund allocation during the first quarter of the year would keep selective stock up if not the whole market. This rally would provide an excellent opportunity to mark an exit from fundamentally weak stocks. Furthermore, budget related news coupled with third quarter results should also keep a large portion of stocks up. Whichkeeps the signals positive.
Madras Cements
Scrips of ACC, Gujarat Ambuja Cement, and Grasim--the top cement majors-- have been in great demand. However, Madras Cements (MCL), one of the main players in the southern market is yet to start its northward journey. However, according to analysts, it would not be very long before MCL also follows the trend of other cement stocks.
The reasons for which are not far to seek. The company, is doubling the capacity at its Jayanthipuram plant in Andhra Pradesh to 2 million at a cost of Rs 80 crore. Normally, the cost per tonne for expansion works out to Rs 2,750 per tonne, but, for MCL the capital cost is almost 30 per cent. This is because the investment is only in a vertical roller mill (which reduces electricity consumption by 5 units/tonne) and silo.
The company will be producing slag cement which would also mean lower cost of production. Slag cement is not only qualitatively superior to ordinary portland cement (OPC) but is also cheaper to produce.While the cost of production of clinker is constant at Rs 700-750/tonne, the company is at a advantage as cost of manufacturing slag cement, slag/fly ash is lower. This is because grinding of clinker is around Rs 650 per tonne while the weighted average cost of slag cement is lower by Rs 200 per tonne.
The company has already tied up with Vizag steel plant for supply of slag. Assuming the cost/tonne of slag at Rs 300/tonne, the cost advantage at grinding stage itself works out to be Rs 200/tonne. The commercial production of expanded capacity is expected to start by the last quarter of 1999.
Slag cement accounted for 45 per cent of production at Alathiyur plant in Tamil Nadu (capacity:1 million tonne) and by March-99 will account for 90 per cent of production. Another major cost advantage for MCL is that Alathiyur unit consumes just 75 units of electricity/tonne of cement against normal consumption of 95 units. The consumption of coal at 715 K.Cal/Kg of clinker is slightly lower than standard. This willresult in higher margins at Alathiyur.
With 1998-99 being the year of formation and break-down of cartels, it is very difficult to estimate cement prices in 1999-00. However, due to its low cost advantage, MCL will be in a better position, as far as the southern markets are concerned. It may also be noted that within four months of launching blended cement, Ramco Super Grade, sale in north TN of the blended cement of MCL is up by 31 percentage point, reaching a market share of 74 per cent. The marketshare in Andhra Pradesh is up from 38 per cent to 58 per cent and in North Kerala, up from 57 per cent to 74 per cent.
Overall, the second half performance in 1998-99 will be at least as good as second half of 1997-98. In the second half of 1997-98, it posted PAT of Rs 11.41 crore compared to Rs 21.69 crore in the first half. The third quarter of 1998-99 due to low prices (in TN Rs 145 from Rs 170 during the cartel days, Rs 150 in Kerala from Rs 180 and Rs 100 in AP from Rs 130) has proved to be catastrophic(particularly November and December) for cement companies as even at this prices despatches did not pick up. Even the very conservative estimate for second half results in year-to-year growth of 55 per cent in EPS. This is possible because of excellent first half of 1998-99 when PAT at Rs 39.81 crore was higher than PAT of Rs 33.1 crore posted for the year 1997-98.
The problem for MCL stock is low liqudity but it is not a negative factor when the trend is up. And an uptrend is expected to start soon.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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