But it will bring in a 9% equity dilution, which would impact its earnings at a time when the cement market does not hold promise.

However, it appears that the company has raised funds largely to prepare for redemption of the $75 million foreign currency convertible bonds (FCCBs) due in May 2011. Given the conversion price of Rs350 a share, it is unlikely that investors may convert debentures to equity. Neither does the company seem inclined to reset the conversion price. Hence, the FCCB redemption and the committed yield to investors would see an outflow of around Rs500 crore at that time.

Graphic: Yogesh Kumar/Mint

For now, there seems to be little reason for optimism. For the three months ended 31 December, the company reported a net profit of around Rs35 crore, 43% lower than a year ago and 75% lower than the preceding quarter. This was due to the drop in operating profit margin to 15% of net sales from 25% in the year-ago period.

Further, although cement makers had increased prices since January, one has to see how the recent 2% rise in excise duty and increase in freight costs will affect prices, demand and profit margins.

Analysts are unanimous in their opinion that the southern market will see surplus supply until fiscal 2012, which means low realizations and profitability. Hence, an equity addition of around Rs25 crore (25 million shares) to the existing equity capital of Rs283 crore is quite untimely. India Cements shares dropped 5% in Mumbai on Tuesday to close at the QIP price of around Rs120 each.

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