From THE HINDU group of publications
Sunday, June 03, 2001


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Madras Cements: Constructive option

Sowmya Krishnan

THE Fixed Deposit programme of Madras Cements is a good investment option for investors with a low-to-medium risk profile.

Investors with a high risk profile who seek higher rates may also consider investing in the company's FD programme. In the light of the softening interest rates, the FD programme seems to provide a good fixed income option -- especially the longer tenors on offer.

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Madras Cement's FD programme is now open for investment. The rates on offer are comparable to other available options in the same risk class. As a rate cut of about 50-100 basis points is expected in the near future, there is a sufficient 1-1.5 percentage point spread for investors now.

The company offers both fixed deposits and cumulative deposits. The rates of interest offered on fixed deposits for the one-year option is 9 per cent, for two years it is 10 per cent and 11 per cent for a three year lock-in period. For the cumulative option, the rates offered are 9.30 per cent, 10.90 per cent and 12.83 per cent for one, two and three years respectively. The company offers quarterly compounding and this should improve the effective yield to investors.

The minimum deposit under both schemes is Rs 5,000 and, thereafter, in multiples of Rs 1,000 each. Deposits are accepted at the company's registered office situated at Madras Cements, Ramamandiram, Rajapalayam-626 117.

Madras Cements is one of the major cement producers in South India with an installed capacity of 3.5 million tonnes per annum. Bulk of its cement production capacity is concentrated in cement deficit Tamil Nadu. The company has a strong market position in the South and the capacity utilisation levels of its facilities are high.

Madras Cements has commissioned a new plant with an installed capacity of 0.9 million tonnes per annum at Alayathiur, Tamil Nadu. The project was funded by borrowed funds due to which the company's gearing levels increased considerably. The debt level was around 1.5 shareholders' funds (equity). This is higher than the average debt:equity ratio of companies in a similar category.

However, the present soft interest rates has reduced the project cost. Though the project has increased the leverage of the company, it is expected to increase revenues in future and contribute to the company's bottomline. The company also has a track record of servicing its debt obligations comfortably even when the cement industry was at the wrong end of the business cycle.

The company's financial performance for the nine-month period ended December 2000 was good. During this period, it reported a turnover of Rs 446.89 crore and a net profit of 42.16 crore against a turnover of 394.62 crore and a net profit of 43.26 crore for the corresponding previous period. During the same period, the operating margins were also up by 3.3 percentage points and operating profits were Rs 129.23 crore. The interest amounted to more than one-third of operating profits.

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Though the company's gearing levels are high, it is not a cause for concern. Madras Cements has the ability to service the deposits. As the long-term prospects are good, investors can consider all the three options offered.

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