Initiating Coverage | Cement
December 21, 2017
Prism Cement Ltd
BUY
CMP
`118
Target Price
`131
Prism Cement Limited (PCL) is an Integrated Building Materials company, and has
Investment Period
12 Months
wide range of products from cement, ready mixed concrete (RMC), tiles, bath
products to kitchens (TBK). Its cement plant is located in central India with units in
Stock Info
Satna (Madhya Pradesh) with a capacity of 7 MTPA. It currently operates 87 ready
Sector
Buildings Materials
mixed concrete plants spread across 40 cities/ towns in India. Its TBK division is
Market Cap (` cr)
5,954
better known as H & R Johnson (India) and it was established in 1958.
Beta
1.4
Revival in tiles division to support growth: Over FY2003-12, the revenue of TBK
52 Week High / Low
129.8/72
segment grew at healthy CAGR of 17% with market leadership position. However,
Avg. Daily Volume
76,156
post FY2012, owing to unavailability of power/fuel at AP (2 plants), Karnataka
(40% capacity) and intense competition, the revenue growth declined.
Face Value (`)
10
Nevertheless, we expect recovery in market share and an improvement in
BSE Sensex
33,777
margins, going forward primarily owing to (a) fuel and power issues being
Nifty
10,444
resolved, (b) scaling up of marketing activities and revamping sales team, (c)
Reuters Code
PRIS.NS
improving utilisation and efficiency, and (d) GST implementation to drive demand
Bloomberg Code
PRSC @IN
for organized products. TBK segment has witnessed reduction in EBIT losses in
2QFY2018 (from `23cr to `5cr), led by volume growth, better product mix and
new product launches.
Shareholding Pattern (%)
Government initiatives to propel cement demand: Cement segment has reported
Promoters
74.8
an uptick over the last three years, and we believe further growth would be
MF / Banks / Indian Fls
9.4
primarily driven by (1) pick up in affordable housing, and (2) higher spending by
FII / NRIs / OCBs
6.8
state & central government on infrastructure. Moreover, there is no major
Indian Public / Others
7.7
additional capacity coming up in central region, hence, PCL will enjoy better
pricing power. RMC segment is also a direct beneficiary of higher spending on
road and affordable housing.
Abs.(%)
3m 1yr 3yr
Outlook & Valuation: PCL is a direct beneficiary of government’s focus on
Sensex
3.7
26.2
22.5
affordable housing and higher spending on infrastructure projects. Thus, we
Prism Cement
5.4
33.3
42.1
expect cement segment to continue to report better profitability. Further, PCL’s
efforts to revive TBK segment has also witnessed volume growth in Q2FY2018.
Improvement in TBK division and debt reduction plan would improve return ratio.
We value the company on SOTP and recommend a BUY on Prism Cement with a
3-year price chart
Target Price of `131.
150
Key Financials (Consolidated)
100
Y/E March (` cr)
FY16
FY17
FY18E
FY19E FY20E
50
Net Sales
5,168
4,961
5,155
5,616
6,030
% chg
(8)
(4)
4
9
7
0
Net Profit
25
14
104
163
222
% chg
(144)
(44)
631
57
36
EBITDA (%)
5.5
6.1
6.7
7.4
8.0
Source: Company, Angel Research
EPS (`)
1
0
2
3
4
P/E (x)
227
403
55
35
26
P/BV (x)
20
20
22
25
29
RoE (%)
2.5
1.4
10.0
13.8
16.1
Jaikishan J Parmar
RoCE (%)
2.7
3.1
4.8
6.5
7.7
EV/Sales (x)
0.8
0.9
0.9
0.8
0.8
022 39357600, Extn: 6810
EV/EBITDA (x)
14.8
14.6
13.6
11.4
10.1
[email protected]
Source: Company, Angel Research Note: CMP as of December20, 2017
Please refer to important disclosures at the end of this report
1
Prism Cement ltd | Initiating Coverage
About company
Prism Cement Limited (PCL) is Integrated Building Materials Company, it has wide
range of products from cement, ready mixed concrete (RMC) tiles, bath to kitchens
(TBK). Its cement plant is located in central India with units in Satna, Madhya
Pradesh with a capacity of 7 MTPA. It currently operates 87 ready mixed concrete
plants spread across 40 cities/ towns in India. Its TBK division is better known as H
& R Johnson (India) and it was established in 1958.
Prism Cement currently holds 51% stake in Raheja QBE General Insurance
Company Ltd, a joint venture with Australia based QBE Insurance Group (holds
49% stake). QBE Insurance Group is one of the Australia’s largest international
General Insurance and Re-insurance groups operating across more than 4 dozen
countries.
Exhibit 1: Key Stats
Distribution Network
Cement Dealer
3,810
TBK Dealer
1,000
House Of Johnson Outlet
25
RMC Plants
87
Source: Company, Angel Research
Exhibit 2: Revenue mix
23
43
34
Cement
TBK
RMC
Source: Company, Angel Research
December 21, 2017
2
Prism Cement ltd | Initiating Coverage
Investment Rationale
Revival in tiles division to support growth
Over FY2003-12, the revenue of TBK segment grew at healthy CAGR of 17% with
market leadership position. However, post FY2012, owing to unavailability of
power/fuel at AP (2 plants), Karnataka (40% capacity) and intense competition, the
revenue growth declined. Nevertheless, we expect recovery in market share and an
improvement in margins, going forward primarily owing to (a) fuel and power
issues being resolved, (b) scaling up of marketing activities and revamping sales
team, (c) improving utilisation and efficiency, and (d) GST implementation to drive
demand for organized products. TBK segment has witnessed reduction in EBIT
losses in 2QFY2018 (from `23cr to `5cr), led by volume growth, better product
mix and new product launches.
Exhibit 3: Quarterly trend
Segment (` cr)
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Revenue
Cement
518.3
531.2
466.5
511.3
635.2
512.4
495.9
703.5
684.2
442
TBK
540.9
563.8
563.9
610.7
445.7
454.9
435.8
526.7
426.1
415.3
RMC
314
307.3
300.8
337.4
335.2
304.4
312.2
322.2
329.6
312.4
Total
1373.2
1402.3
1331.2
1459.4
1416.1
1271.7
1243.9
1552.4
1439.9
1169.7
Less Inter-segment
43
39
34
39
65
43
43
39
40
45
Net sales
1330.2
1363.3
1297.2
1420.4
1351.1
1228.7
1200.9
1513.4
1399.9
1124.7
PBIT
Cement
47.5
23
35.9
46.4
81.9
26.7
34.9
118.6
87.8
27.2
% of sales
9.2%
4.3%
7.7%
9.1%
12.9%
5.2%
7.0%
16.9%
12.8%
6.2%
TBK
-4.4
-12.2
-5.5
-9.2
-18.2
-17.5
-29.2
-26.4
-22.4
-5
% of sales
-0.8%
-2.2%
-1.0%
-1.5%
-4.1%
-3.8%
-6.7%
-5.0%
-5.3%
-1.2%
RMC
4.3
2.8
5.6
12.9
10.8
-3.2
-0.2
8.2
-6.6
-3.4
% of sales
1.4%
0.9%
1.9%
3.8%
3.2%
-1.1%
-0.1%
2.5%
-2.0%
-1.1%
Total
47.4
13.6
36
50.1
74.5
6
5.5
100.4
58.8
18.8
Less: Interest & Finance
62
66.8
56.8
53.9
55.4
39.2
54.4
34.4
46.9
46.4
Less: Other Net unallocated. exp.
-2.3
-2.5
-2.2
-64.5
-2.8
-12.1
-2.7
-7.7
-12.1
-3.8
PBT (after extraordinary)
-12.3
-50.7
-18.6
60.7
21.9
-21.1
-46.2
73.7
24
-23.8
GST implementation a boon for organized sector: Revised GST rates for tiles and
sanitaryware has been fixed at 18% from 28%. This would act against unorganized
segment, as it will be difficult to evade taxes. Over a period of time, with better
enforcement of GST, market share of unorganized players would come down,
benefiting the organized players.
December 21, 2017
3
Prism Cement ltd | Initiating Coverage
Government initiatives to propel cement demand
Cement segment has reported an uptick over the last three years, and we
believe further growth would be primarily driven by (1) pick up in affordable
housing, and
(2) higher spending by state & central government on
infrastructure. Moreover, there is no major additional capacity coming up in
central region, hence, PCL will enjoy better pricing power. RMC segment is
also a direct beneficiary of higher spending on road and affordable housing.
PCL has taken various following initiatives to improve EBITDA per
tonne/margin
Increasing share of pet coke
Purchasing power from third parties at lower rates
1) The company has successfully won the bid for 1,38,300 tonnes per
annum of coal from South Eastern Coalfields Ltd, to partially secure the
fuel requirement for the next 5 years.
2) PCL has signed a power supply agreement with BLA Power for sourcing
25MW of power for its plant under the Captive Arrangement, as per the
Electricity Rules, 2005
Change in cement product mix. The higher realization cement has contributed
3% to total revenues in FY2015 and 11% in FY2017; PCL expects to reach
16% in FY2018.
Streamlining logistics.
Exhibit 4: EBITDA per tonne
1,400
1,227
1,200
1,000
832
800
698
600
501
477
410
400
339
249
173
200
-
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Source: Company, Angel Research, Reported EBITDA/Ton (Incl operating Income)
December 21, 2017
4
Prism Cement ltd | Initiating Coverage
Ready Mix Concrete has reported subdued sales CAGR of 3.1% over FY2013-17.
PCL management, intentionally, did not opt for aggressive growth in RMC segment
post FY2012, as many large projects got stranded and led to cost overrun and
ultimately high debt on infrastructure companies. Further, as debt laden infra
companies were not in a position to pay the debtors on time, hence, they took the
decision to go slow in RMC segment to avoid bad debts.
Exhibit 5: RMC EBITDA trend
60
7.0%
Subdued Economy & Extra Cautious on Debtors
6.1%
6.0%
50
5.9%
4.9%
5.0%
40
4.1%
4.0%
30
3.4%
3.1%
3.0%
20
2.4%
2.5%
2.0%
10
1.0%
-
0.0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA (` cr)
EBITDA %
Source: Company, Angel Research
Ready mixed concrete has much better acceptability globally than in India. RMC
currently consists of 10% of the total cement consumed in India as against close to
50-70% in developed countries. In India, ready mixed concrete, in the metro and
Tier I cities holds a share of close to 35% of the total cement consumed and 20%
in Tier II cities.
The present, the government has a clear focus regarding execution of stranded
projects. In order to revive private capex, government is emphasizing on improving
execution of infrastructure projects. Currently, growing pollution is the biggest
challenge faced by the urban cities. Hence, there is an increased trend of using
ready mixed concrete across major construction sites in cities. As per the report by
Cement Vision 2025 by CII - A T Kearney, India would witness a steady growth in
the use of ready mixed concrete and its share is estimated to grow up to 25% by
2025 of the total cement consumed.
December 21, 2017
5
Prism Cement ltd | Initiating Coverage
No major capex in the offing, debt reduction to fuel profitability
From FY2015 onwards company has been steadily paying debt and it has planned
to further reduce debt till FY2019. The company has two capex plans (1) waste
heat recovery plants in next two years and the capex is likely to be funded through
internal accruals, (2) Greenfield expansion in Kurnool District, AP, for which
required land is in possession, limestone reserves secured and environment
clearance in place. This expansion would depend on demand situation for the next
two years, if demand supply situation improves than only PCL will go ahead with
this expansion.
With no major capex plan, greater focus to revive TBK division and government’s
infra push, PCL would witness better ROE and stronger cash from operation. We
expect current subdued ROE (FY2017 - 1.4%) would improve over the next 2-3
years (FY18/FY19/FY20 -10%/13.4%/15.7%).
Exhibit 6: ROE trend (%)
Exhibit 7: ROCE trend (%)
20
8
8
16
7
6
15
13
6
10
5
10
5
4
4
5
3
2
1
3
3
-
2
FY15
FY16
FY17
FY18
FY19
FY20
1
-5
-5
-
-10
FY15
FY16
FY17
FY18
FY19
FY20
Source: Company
Source: Company
Owing to subdued economy, silo reconstruction at cement plant, power and fuel
unavailability in AP & Karnataka for TBK division, PCL’s top-line grew at CAGR of
2% over FY2012-17. However, considering the management’s efforts to revive TBK
segment and government’s infra push, PCL would register improved EBITDA
margin and return ratios going forward.
December 21, 2017
6
Prism Cement ltd | Initiating Coverage
Outlook & Valuation
PCL is a direct beneficiary of government’s focus on affordable housing and higher
spending on infrastructure projects. Thus, we expect cement segment to continue to
report better profitability. Further, PCL’s efforts to revive TBK segment has also
witnessed volume growth in Q2FY2018. Improvement in TBK division and debt
reduction plan would improve return ratio. We value the company on SOTP (15x
FY20E Cement & TBK EBITDA and 12x FY20E RMC EBITDA) and recommend a
BUY on Prism Cement with a Target Price of `131.
Key risks
1. Ban on use of pet coke by the government authorities and sand mining
issue in UP and MP may impact profitability.
2. Subdued Revival of TBK segment would adversely impact financials of the
company.
Key Personnel
Atul Desai is a CEO and Executive Director at RMC Ready Mix. He did B.E. in
Chemical Engineering from Gujarat University and MBA in Marketing from South
Gujarat University. He is skilled in negotiation, budgeting, business planning,
cement and procurement. His past experience was with Reliance Cement as an ED
& CMO and with Ambuja Cement as a Unit Head.
Joydeep Mukherjee is a CEO and ED at H&R Johnson. He did PGDM in marketing
management from IGNOU, Kolkata and EMIB - international business and
marketing from IIFT, New Delhi. His past experience was with Hindalco and with
ACC as Director, Sales, where he led medium to large sized teams consistently to
achieve short and long term business goals.
Vivek Agnihotri is a CEO and Executive Director at Prism Cement Ltd., Mumbai. He
did B.A. Honors Economics from Delhi University and MBA in Marketing from FMS,
Delhi University. His past experience was with ACC Ltd. as Director Sales and
Ambuja Cement as a Chief Corporate Services Officer.
December 21, 2017
7
Prism Cement ltd | Initiating Coverage
Income statement
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Total operating income
5,168
4,961
5,155
5,616
6,030
% chg
(8)
(4)
4
9
7
Total Expenditure
4,886
4,656
4,809
5,201
5,547
Raw Material
1,978
1,857
1,928
2,095
2,243
Personnel
442
472
490
522
555
Others Expenses
2,466
2,327
2,392
2,583
2,750
EBITDA
282
305
345
416
482
% chg
(6)
8
13
20
16
(% of Net Sales)
5
6
7
7
8
Depreciation& Amortisation
184
192
169
180
195
EBIT
98
113
176
235
288
% chg
(27)
15
56
34
22
(% of Net Sales)
2
2
3
4
5
Interest & other Charges
281
217
200
186
173
Other Income
207
145
155
168
181
(% of Sales)
4
3
3
3
3
Share in profit of Associates
-
-
-
-
-
Recurring PBT
24
41
130
218
295
% chg
(429)
75
214
67
36
Tax
(2)
27
26
54
74
PAT (reported)
25
14
104
163
222
Adj Pat
25
14
104
163
222
% chg
(144)
(44)
631
57
36
(% of Net Sales)
0
0
2
3
4
Basic & Fully Diluted EPS (Rs)
1
0
2
3
4
% chg
(144)
(44)
631
57
36
December 21, 2017
8
Prism Cement ltd | Initiating Coverage
Balance sheet
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
SOURCES OF FUNDS
Equity Share Capital
503
503
503
503
503
Reserves& Surplus
495
492
596
759
981
Shareholders Funds
998
995
1,099
1,263
1,484
Minority Interest
249
269
269
269
269
Total Loans
2,212
1,980
1,900
1,700
1,650
Other Liab & Prov
314
367
381
416
446
Total Liabilities
3,773
3,611
3,650
3,648
3,850
APPLICATION OF FUNDS
Net Block
2,472
2,415
2,357
2,444
2,487
Capital Work-in-Progress
69
136
86
99
113
Investments
280
339
339
339
339
Current Assets
1,828
1,525
1,846
1,832
2,055
Inventories
645
562
579
631
677
Sundry Debtors
611
626
650
708
760
Cash
131
81
235
77
170
Loans & Advances
441
256
383
417
448
Current liabilities
1,215
1,238
1,282
1,397
1,500
Net Current Assets
613
287
564
435
555
Other Non Current Asset
339
434
304
331
356
Total Assets
3,773
3,611
3,650
3,648
3,850
Cash Flow Statement
Y/E March (`cr)
FY16
FY17
FY18E
FY19E
FY20E
Profit before tax
(22)
28
130
218
295
Depreciation
156
160
169
180
195
Change in Working Capital
45
166
21
(23)
(20)
Interest / Dividend (Net)
228
177
200
186
173
Direct taxes paid
(2)
(5)
(26)
(54)
(74)
Others
34
(17)
-
-
-
Cash Flow from Operations
372
543
495
507
569
(Inc.)/ Dec. in Fixed Assets
(195)
(128)
(111)
(266)
(239)
(Inc.)/ Dec. in Investments
90
(39)
51
(13)
(14)
Cash Flow from Investing
(104)
(168)
(61)
(279)
(253)
Issue of Equity
-
-
-
-
-
Inc./(Dec.) in loans
-
-
(80)
(200)
(50)
Others
(249)
(396)
(200)
(186)
(173)
Cash Flow from Financing
(249)
(396)
(281)
(386)
(223)
Inc./(Dec.) in Cash
18
(21)
154
(158)
93
Opening Cash balances
57
75
81
235
77
Closing Cash balances
75
54
235
77
170
December 21, 2017
9
Prism Cement ltd | Initiating Coverage
Key Ratios
Y/E March
FY16
FY17
FY18E
FY19E
FY20E
Valuation Ratio (x)
P/E (on FDEPS)
226.9
402.7
55.1
35.1
25.9
P/CEPS
27.4
27.8
21.0
16.7
13.8
P/BV
5.7
5.8
5.2
4.5
3.9
Dividend yield (%)
0.0
0.0
0.0
0.0
0.0
EV/Sales
0.8
0.9
0.9
0.8
0.8
EV/EBITDA
14.8
14.6
13.6
11.4
10.1
EV/Total Assets
1.1
1.2
1.3
1.3
1.3
Per Share Data (`)
EPS (Basic)
0.5
0.3
2.1
3.2
4.4
EPS (fully diluted)
0.5
0.3
2.1
3.2
4.4
Cash EPS
4.2
4.1
5.4
6.8
8.3
DPS
-
-
-
-
-
Book Value
19.8
19.8
21.8
25.1
29.5
Returns (%)
ROCE (Pre-tax)
2.7
3.1
4.8
6.5
7.7
Angel ROIC (Pre-tax)
3.0
3.6
5.8
7.7
9.0
ROE
2.5
1.4
10.0
13.8
16.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.5
1.8
1.8
1.8
1.8
Inventory / Sales (days)
46
41
41
41
41
Receivables (days)
43
46
46
46
46
Payables (days)
52
55
55
55
55
Working capital cycle (ex-cash) (days)
37
32
32
32
32
Solvency ratios (x)
Net debt to equity
1.8
1.6
1.2
1.0
0.8
Net debt to EBITDA
6.4
5.1
3.8
3.1
2.4
Interest Coverage (EBIT/Interest)
0.3
0.5
0.9
1.3
1.7
Note - Valuation done on closing price of 15/12/2017
December 21, 2017
10
Prism Cement ltd | Initiating Coverage
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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or in connection with the use of this information.
Disclosure of Interest Statement
Prism Cement
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
December 21, 2017
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