Chettinad Cements: Crumbling?

Anup Menon

GIVEN the rates on offer, the fixed deposit programme of Chettinad Cements may not be a good option, irrespective of the risk profile of the investor.

Considering that the investment in a term deposit with private sector banks yields around 9.5 per cent, the risk premium offered by the company may not be adequate.

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The company's performance in the first quarter of fiscal 2001 was not good, adding to the risk profile. The gearing levels were comfortable and the interest coverage ratio stable. In this backdrop, the company is not likely to face problems in servicing its fixed deposit base. However, fresh investments need not be considered at current rates, especially with the prospect of an upward trend in interest rates.

The fixed deposit programme of Chettinad Cement is open for investment. The company offers two schemes -- fixed and cumulative. The tenure for both is one, two and three years at 10 per cent, 11 per cent and 12 per cent respectively. The minimum investment for all options under both schemes is Rs 10,000 and, thereafter, in multiples of Rs 1,000 each. Deposits will be accepted at the registered office at Chettinad Cement Corporation Ltd, Rani Seethai Hall Building, 603, Anna Salai, Chennai -- 600 006.

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Chettinad Cement Corporation Ltd (CCCL) is one of the leading players in the cement industry in South India. For the year-ended March 2000, close to 80 per cent of the sales turnover was generated from cement. The company also has interests in the shipping business. It managed a capacity utilisation level of around 137 per cent for fiscal 2000.

In the two-year period, starting 1997, the company's performance was not very impressive due to the deterioration in the fundamentals of the industry, especially on the pricing front. With prices under pressure and costs edging up, the profitability of most companies has come under stress. And given the evidence of earnings in fiscal 2000-01 to date, this trend may continue.

Competition in the cement industry has been increasing and cost-efficiency may be the key to success for companies. The first quarter performance indicates that operating costs have risen 25 per cent on a quarter-to-quarter basis. This being the case, the company will have to tighten its belt to improve earnings levels.

The company's financial performance for the quarter-ended June 2000 was not impressive. Sales revenues fell 13.25 per cent to Rs 47.06 crore compared to the previous corresponding period. Operating margins dropped from 33 per cent to around 4 per cent and post-tax earnings by 94 per cent to Rs 33 lakh.