Shares of India’s Binani Cement Ltd. (532849.BY) Monday closed 8.5% below their initial public offer price, on fears that the freeze on cement prices and excess supply will squeeze the company’s profits.
The stock opened at INR79 on the Bombay Stock Exchange and closed at INR68.65 compared with an initial public offer price of INR75, with nearly 5.8 million shares changing hands. The BSE’s 30-stock benchmark Sensitive Index, or Sensex, was up 0.4% at 14,397.89.
However, analysts expect the stock to trade around INR90 in a year’s time on hopes that the company will ride the high demand for cement because of strong construction activity across the country.
The stock touched a high of INR79 and a low of INR67.45 on the BSE.
"The opening was along expected lines. The honeymoon period for the cement sector ended after it agreed to hold prices for a year. Prices have begun coming off in pockets and a supply glut is widely expected by 2009," said national stock exchange member S. Tulsian.
Cement makers in April agreed to hold prices for a year following pressure from the government, which has been trying to curb price hikes to tame inflation.
"Prices will be very stable. We just reduced prices by INR3 per bag...and we don’t foresee any changes in prices or pricing pressure in our markets for the next 24 months," D. Sundararajan, executive director of Binani Cement, said.
"As far as capacity increase in concerned, something is expected in (financial year) 2008... expansion of volume will come in by the third and fourth quarters in full strength and we hope to more than double our earnings per share to INR12 this year," he added.
Binani Cement sold 20.5 million shares through an offer for sale by JP Morgan Special Solutions (Mauritius) Ltd. The IPO constitutes 10.09% of the company’s post-offer paid up capital.
Last year, JP Morgan had invested INR1.2 billion in Binani’s equity and then extended a term loan of INR1.3 billion for the expansion of cement capacity.
The indicative price band was set between INR75-INR85, and about INR1.54 billion was raised at the issue price of INR75. The overall issue was subscribed about 1.36 times.
Binani Cement, a unit of Binani Industries Ltd. (500059.BY), sells its products primarily in the northern Indian markets of Delhi and Haryana, and in Rajasthan and Gujarat in Western India.
After the IPO, JP Morgan will hold 14.9% while Binani’s founders will hold 64.9%. A unit of Credit Suisse Private Equity Partners Asia will hold a 10.1% stake.