N Srinivasan's India Cements May Be Hitting Sixes But The Pitch Is Set To Get Trickier

For assorted reasons—including the way India Cements dominated the southern market once and the media focus on Srinivasan, a former president of the Board of Control for Cricket in India—the company has remained under the arc light for a long time. Read in conjunction with the shareholding of Damanis in the company, the unexpected rise in stock price and trading volume has sent tongues wagging.

Nearly 12% of India Cements' shares has changed hands in the open market. A guessing game is already on as to its buyers and sellers. Have Damanis eased their shareholding in India Cements? Who are the buyers? The speculation has turned intense.

According to top sources who requested anonymity, Damanis have chosen to remain as investors. They never exhibited any aspirational intent vis-à-vis India Cements. It's gleaned from highly-placed sources that they weren't averse to selling their shares in one go to the promoters. Of course, it has huge financial implications for the promoters. Viewed in this context, the puzzle over the stock price rise appears trickier. Considering the recent happenings in the cement arena—especially around the southern side of the country—however, the quiz is turning even more exciting.

India Cements, at the moment, is running with a huge constraint vis-a-vis its peers in the field. It has a lot of legacy plants around it. This makes it difficult for it to jostle for its rightful place in an environment which is turning competitive by the day. Legacy plants are adding up to its production cost, making it uncompetitive in the marketplace. India Cements has indeed woken up to this—albeit a little late. But it has, in the meanwhile, yielded place to competition.

What's hurting India Cements at the moment is its inability to sell more at a time when the demand is picking and input costs (like coal price) are sliding. A combination of legacy plants and working capital shortage is proving to be a big stumbling block for India Cements at the moment. Based on the advice of a global consultant, the company has already taken steps to modernise its plants—in a calibrated manner, though. But then, it will take at least a little while for the modernisation exercise to complete. Until then, the competition has a clear advantage.

Problems notwithstanding, knowledgeable sources say that India Cements has an asset-rich balance sheet. It also has substantial land assets. The management has already indicated that they won't fight shy of quitting unproductive land assets to tide over funding needs. In fact, it has sold a few land parcels. It recently sold a grinding unit at Parli in Maharashtra.