The Rajan Raheja-controlled Prism Cement has posted surprisingly good results in the last quarter of 1998-99. For a two million tonne plant located in the Satna cluster, the OPM of 23 per cent in the last quarter is an achievement. According to the management, this is due to the improved demand for cement in the region. This is hard to understand. Normally, despatches in the fourth quarter are always the highest. In Gujarat and Mumbai, prices crashed sharply in March on account of higher volumes. Satna is the cement cluster of the country and it is difficult not to appreciate the cost control of the company which managed to post such an impressive OPM in the fourth quarter of the first full year of production.The basic problem with the company is the equity. The equity of Rs 256.97 crore for a two million tonne plant, makes the servicing of the equity almost impossible. To make matters worse, the debt-equity ratio is above two (equity adjusted for the accumulated loss of Rs 81.55 crore). Despite theimpressive performance in the last quarter of the year, the interest cover for 1998-99 is 0.96. Being a new plant, unless the net cement realisation is maintained at the level of the fourth quarter and volumes improve dramatically, it will be difficult to cover the interest and depreciation cost. The despatches registered in the last quarter cannot be sustained throughout the year and for 1998-99 and 1998-99 also, the company has posted gross loss.
There is not much reason for shareholders to be enthused. It will require consistently better than the last quarter performance from the company before the discounting improves even marginally. As regards dividend, at least for the next three years there is little hope of a payout, because of lack of profit. Even the debenture redemption reserve is yet to be created.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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