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Prism Johnson operates in three business segments : Cement; Tile and Bath (HRJ) and Ready Mixed Concrete (RMC).

Company Background and Business Model
Prism Johnson (Prism) is part of the Rajan Raheja group and is a unique integrated building materials’ company, with a wide range of products from cement (43% of FY18 revenue), ready-mixed concrete (24.3% of FY18 revenue), tiles, and bathroom products (30.5% of FY18 revenue). Prism also has a 51% stake in Raheja QBE General Insurance Company Limited, a JV with QBE Group of Australia. Prism has been an industry leader in its tiles business segment and has also achieved industry best operating efficiency in its cement business division.
Investment Rationale

Robust Q3FY19 an 9MFY19 performance portraying a classic turnaround –
Net sales in Q3FY19 came in at 21440 crore, up 10.3% YoY that was supported by healthy growth in all three segments. EBITDA for the quarter stood at 2109 crore (up 20.0% YoY) with corresponding EBITDA margins at 7.6% (up 61 bps YoY). This was largely on the back of robust cement division business that saw EBITDA / tonne rise to 2701/tonne in Q3FY19 from 2580/tonne in Q3FY18. This was mainly because of healthy volume growth resulting in better operational efficiencies and resurging demand in central & eastern states resulting in better realisations. Consequently, PAT in Q3FY19 came in at 219.0 crore vs. 14.9 crore in Q3FY18. Similarly, net sales, EBITDA and PAT came in robustly in 9MFY19 at 24273 crore (up 12.6% YoY), 2370.2 crore (up 76.3% YoY) and 296.3 crore (up 1155% YoY) respectively. EBITDA margins for 9MFY19 came in at 8.7% (up 313 bps YoY) again supported by strong performance in cement division with EBITDA/tonne rising to 2781/tonne in 9MFY19 from 2535/tonne in 9MFY18.

> Improvement in performance across all three segments at Prism – Cement division sales for 9MFY19 stood at 21978 crore, up 16.5% YoY that was largely led by improved volume uptick (up 13.8% YoY). 9MFY18 EBITDA for this division stood at 2353.3 crore (up 66.2% YoY) largely due to strong EBITDA/ tonne improvement. This robust performance of the cement division can be credited to better operational efficiency due to increased volumes, higher share of premium products and improved demand/supply situation in Central & Eastern states. RMC division registered sales of 21086.8 in 9MFY19 (up 9.7% YoY) with corresponding EBIT coming in at 212.8 crore in 9MFY19 (against 24.8 crore loss in 9MFY18). This improved performance was led by continued demand shift from unorganized to organized players, better demand scenario due to pick up in real estate and infrastructure and increasing share of value added products. Lastly, HR Johnson division (tiles and bathroom fittings) registered sales of 21233 crore in 9MFY19, largely flat YoY. The business continued to incur losses with 9MFY19 EBIT loss at 223.8 crore compared to 31.8 crore loss in 9MFY18. The company is committed to turnaround operations at this division in the coming quarters by strengthening its marketing & distribution reach and improved product designs.
  • Valuation
    Post the elongated period of consolidation of capacities in Central & Eastern India and resurgent demand pick up due to increased infrastructure activity has led to an improved demand/supply scenario in this region and augurs well for companies such as Prism. This has been evident from the stellar Q3FY19 and 9MFY19 performa nce at the company and most encouraging fact is that the improved performance is broad based i.e. across all three segments. The key to watch out for will be the turnaround expected in the H&R Johnson division under the recently appointed leadership of Mr. Sarat Chandak (over 24 years of experience in the building material industry particularly tiles). Furthermore, the recent decline in fuel prices, improved demand scenario and cost efficiency measures undertaken at the company are expected to boost the operational perfo rmance across all three verticals at Prism. Given all these positive triggers, consolidated sales, EBITDA and PAT as per consensus Bloomberg estimates are expected to grow at a CAGR of 9.8%, 27.9% and 150.6% respectively over FY18-20E. On the balance sheet front, the company has reduced its standalone debt by ~`85 crore to ~` 1410 crore as of December 2018. At the current market cap of `3,783 crore the company is trading at inexpensive valuations of 14.4x FY20E P/E and 7.4x FY20E EV/E BITDA. Therefore, given the stellar performance and anticipated turnaround across verticals at Prism we are POSITIVE on the stock as its core return ratios are expected to reach high double digits and improved profitability will result in robust cash flow generation.
  • Market Cap: 3,536 Cr.
  • Current Price: 70.25
  • 52 weeks High / Low 144.50 / 62.45
  • Book Value: 21.31
  • Stock P/E: 22.24
  • Dividend Yield: 0.00 %
  • ROCE: 11.48 %
  • ROE: 7.05 %
  • Sales Growth (3Yrs): -1.12 %
  • Listed on BSE and NSE
  • Company Website
  • Face Value: 10.00
Pros:
Promoter’s stake has increased
Cons:
Stock is trading at 3.30 times its book value
Though the company is reporting repeated profits, it is not paying out dividend
The company has delivered a poor growth of 2.55% over past five years.
Company has a low return on equity of 1.35% for last 3 years.

Peer Comparison Sector: Cement // Industry: Cement – North India

S.No. Name CMP Rs. P/E Mar Cap Rs.Cr. Div Yld % NP Qtr Rs.Cr. Qtr Profit Var % Sales Qtr Rs.Cr. Qtr Sales Var % ROCE %
1. UltraTech Cem. 3449.40 46.39 94733.46 0.30 393.67 -13.73 9389.62 18.85 12.11
2. Ambuja Cem. 207.60 25.57 41221.99 1.73 287.70 10.40 6017.58 11.87 13.62
3. ACC 1368.30 16.90 25694.93 1.90 732.35 256.05 3895.60 11.49 15.51
4. Shree Cement 15963.35 47.29 55616.31 0.31 301.29 -9.61 2780.63 20.75 18.08
5. Century Textiles 736.35 14.63 8224.71 0.88 134.27 49.29 951.11 -7.23 14.10
6. Star Cement 87.15 11.41 3653.58 1.15 83.69 -8.43 416.43 10.33 21.01
7. J K Cements 696.65 19.34 5382.89 1.30 60.91 -16.61 1273.19 13.06 15.57
8. Prism Johnson 70.25 22.24 3536.10 0.00 19.02 28.08 1439.82 10.34 11.48

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