Damani’s stake in the cement maker stood at 4.72 per cent as of December 31, 2019, according to the stock exchange data.
“Looking at the cheap valuations India Cements was available at, Damani may have found it attractive,” says an analyst at a domestic brokerage, not wanting to be quoted.
The stock, which had been on a downtrend from Rs 220 levels in May 2017, had fallen to Rs 70 in August 2019, and was hovering around Rs 70–90 levels till February this year. After witnessing more than 50 per cent erosion in its market cap, it was available at replacement costs (enterprise value) of close to $50 a tonne based on FY21 estimated capacities.
Though the decline in stock price had been in the back of weak cement demand in South India, and thereby cement price correction, the valuation discount was significant as compared to peers. For instance, The Ramco Cements, its South-based cement peer, is trading at replacement cost of close to $100 a tonne based on its FY21 estimated capacities. Others like HeidelbergCement India and Dalmia Bharat are available at replacement cost of $70-100 per tonne. Even after Friday’s gains, India Cements is available at close to $60 a tonne levels, point out analysts.
Experts say that while plans of Damani family are not known, there could be two options for the ace investors. “Either Damanis are looking at operating the company. In that case, given that the present promoters (N Srinivasan & family) still hold 28.26 per cent, it will be interesting to see how the two get together to run the business,” said an analyst, “unless the present promoters are looking at an exit.” In either situation, the development will be positive for investors as Damanis can help improve the business and valuations.
The other option, according to analysts, could be that the Damanis sell their stake at higher valuations to another interested party.