| Date: |
14-03-2016 |
| Subject: |
Cost cuts, new capacity to help Prism Cement rebuild |
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ET INTELLIGENCE GROUP: Hyderabad-based Prism Cement has taken measures to turn profitable and reduce debt. A focus on cost rationalisation, pick-up in cement and tiles demand and steps taken to reduce pressure on the tiles business are likely to enhance the stock's valuation.
BUSINESS Prism Cement earns half of its revenue from cement and readymade concrete business while the remaining is derived from ceramic tiles division. The cement capacity can be expanded to 7.6 million tonnes (MT) from the current 5.6 MT at Satna, Madhya Pradesh, which is also one of the biggest limestone clusters in India.
The company sells cement in central and eastern India. These are wellplaced in terms of stable demand and have a high capacity utilisation at over 76% compared with the all-India average utilisation of 69%. Large infrastructure projects such as east and west freight corridor will keep the deamand firm in these regions.
The company is known for its tiles brand Johnson. It has a capacity of 54.5 million square metres (msm), of which 40% is located in the South. The tiles business was impacted due to unavailability of power and gas at its plants in Andhra Pradesh and Karnataka. Also, it was facing stiff competition from Chinese companies which were selling tiles at 15% lower than market prices.
These factors shrank the tiles division's operating margin to 3.4% in FY15. As a remedy, it has installed three coal gassifiers at its plants, and secured natural gas pipeline connectivity. The government is expected to impose anti-dumping duty to ease the pressure from Chinese imports. Spark Capital expects operating margin to go up to 6% by FY18.
The company is also expected to benefit from its new capacity of 7 million cubic metres of readymade concrete. Through its 81 plants in 35 cities, it is a leading player in manufacturing of readymade concrete.
FINANCIALS AND VALUATION In the December quarter, Prism was able to reduce net loss to Rs 12 crore from Rs 40 crore a year ago due to cost cutting measures. Revenue was Rs 1,323 crore, similar to the year ago level. Given the focus on pet coke usage and shutting of non-profitable plants and turnaround in tiles segment, the company's net debt-equity ratio is expected to reduce to 0.8 in FY18.
Considering FY17E earnings, the company's enterprise value is 9.8 times its operating profit before depreciation (EV/EBIDTA) compared with its three-year average of 14.
Source : economictimes.indiatimes.com
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