Time To Exit

We had recommended Andhra Cement to our investors as one of our low-priced scrips in our Issue No 13 dated June 8-21, 2009 at Rs 29.50. Our recommendation was backed by factors such as the company’s plans to expand its capacity to 3.50 million tones from its current levels of 1.40 million tonnes, better than expected financial performance, its higher replacement value than its EV and expected improvement in the margins. After our recommendation the scrip touched a high of Rs 34 but could not achieve our target price. Now at its current levels, our recommendation to investors is to book loss and exit from the counter. The simple reason behind the same is the increased number of pledged shares.

Recently the company pledged 1.32 crore equity shares which form 10 per cent of the total outstanding shares. As a result, the total number of promoters who have pledged shares is around 67 per cent and this is now 89 per cent of the promoters’ holding. Although the shares have been pledged for raising capital to undertake expansion, we are of the opinion that it is risky to invest in a counter which has 67 per cent pledged shares. So it would be prudent to exit from the counter. On the financial front, the company performed well in Q1FY10 wherein it posted a topline of Rs 107 crore and bottomline of Rs 17 crore. Even the replacement cost theory is intact but the high number of pledged shares is what has become a matter of concern.