Raasi Cements

The move is ill-timed, coming at a juncture when the cement industry is reeling under the effects of a demand slowdown and rising input costs. Instead of trimming costs to protect margins, it is entering new businesses where it will have to incur additional costs.

This could have been acceptable if the new businesses proved profitable. The choice of businesses, ceramic tiles and paper, are least likely to help improve margins. Raasi Ceramic, the ailing subsidiary of RCL is being merged with it.

The turnover for the second half of 1996-97 (after including Raasi Ceramic's figures) was Rs 194.08 crore, up by about 10 per cent over last years figure, while net profit fell from Rs 18.31 crore to Rs 7.46 crore. Operating margins fell from 16.96 per cent to 11.99 per cent. The merger ratio, at 1 share of RCL for every 64 shares of Raasi Ceramic, saw the equity of RCL rise by a meagre Rs 3 lakh to Rs 16.34 crore.

Raasi Ceramic has been continuously making losses, with accumulated losses as of March 1996 to the tune of Rs 9.58 crore which had wiped out its net worth. The industry is in the doldrums plagued by capacity glut, high input costs, slowdown in the construction market and a severe power shortage.

The icing on the cake is the decision to merge Telengana Paper Mills, which is another BIFR case. Another unrelated diversification into a sector which is not doing too well, is likely to cause a further strain on its earnings.