The early morning report that Prism Cement was raided by the mining department, found with 40,000 metric tonnes of coal worth Rs 12 crore allegedly stored illegally, and that it was fined a whopping Rs. 120 crore, sent shock waves across Prism’s shareholders.
Daljeet & Santosh, the originators of the stock idea, rushed to take stock of the situation. They have now dashed off an advisory, after talking to the management, that there is ambiguity in the law on whether the law at all applies to cement companies. According to the management, the law does not apply to the cement manufacturers but only to mineral dealers.
Daljeet and Santosh have also crunched the numbers and concluded that in the worst case scenario, the maximum fine will be about Rs. 24 crore, which would not have a major impact on FY15-16E financials.
At the end, Daljeet and Santosh have given the assurance that their price target of Rs. 117 (which is a 67% upside from the CMP of Rs. 70) is still intact.
So, if you haven’t panicked already and sold the shares, you can rest easy. You may also note that all indications are that mid-cap cement companies is where the action is going to be in the near future (see Investors troop into mid-sized cement companies on attractive valuations).