India Cements has raised US$75m from the sale of five-year convertible bonds and the company is getting ready to report its first full-year profit since 2001.
A return to profitability early in fiscal 2006 (which ended March 31) was key. Plus there was optimism that the company – India’s fifth largest cement manufacturer - has left its previous debt problems behind after an extensive restructuring. This had seen the share price go 249 per cent higher in the 12 months before the deal. This year alone, the stock is reportedly up 134 per cent and the demand for a recent bond issue suggest investors think there is still room for more.
The majority of this latest bod offering, about 58 per cent was bought by European investors, which was explained by the fact that the deal was launched very late in the Asian day. About 25 per cent was taken up by Asian accounts, while the rest went to offshore US investors, the sources said.
According to analysts, a key argument for buying into the company despite the huge share price run is the strong demand for building materials like cement in Southern India, where India Cements is the largest manufacturer. There is expected to be little new capacity coming on board to meet this surge in demand.
The company has also managed an impressive turnaround in the past year, not least because of cost savings. Its fiscal third quarter results showed a 32 per cent rise in sales on the back of a 23 per cent rise in cement volumes and a 19 per cent increase in prices.
The bond proceeds will also be partly for capital expenditures. The company has earlier said it needs money to increase its production capacity by 2mta from about a current 8.8Mta at present to meet demand.
The takeover rumours, which emerged two weeks ago and suggested that industry giant Grasim Industries was eyeing a stake in India Cements, were denied by the management who said India Cements was not in talks with its larger competitor and was not open to investments from private equity at this stage (abstracted from Financial Asia)