MOSL: PRISM CEMENT (Buy)-Cement division set for a better 2HFY18-TBK segment to see profitability improvement

​PRISM CEMENT: Cement division set for a better 2HFY18; TBK segment to see profitability improvement led by better product mix

(PRSC IN, Mkt Cap USD0.9b, CMP INR110, TP INR130, 17% Upside, Buy)

We recently hosted Prism Cement (PRSC) at our ‘Midcap Conference’.

• Cement demand for the company is likely to grow 5% YoY in 2HFY18, led by resolution of the sand mining issue in UP, a favorable base of 2HFY18 (was impacted by demonetization) and strong growth from the underlying markets of UP/MP.
  
• Improved pricing in the central market – driven by higher consolidation, limited supply addition and strong demand – will result in a margins improvement for the cement division in 2HFY18/FY19.
  
• TBK segment should see a margins improvement in 2HFY18/FY19, led by its higher utilization, product mix improvement and new product launches.
  
• Led by a favorable base and a positive business outlook in both cement and TBK, we expect EBITDA CAGR of 29% over FY17-20.
  

Cement demand to inch up in 2HFY18/FY19

• PRSC’s volumes fell ~3% YoY in 1HFY18 due to the ramp-up of JPA’s assets and demand destruction in the underlying markets due to the sand mining ban in UP/Bihar (together constitute ~72% of its overall volumes). Our channel checks suggest that the sand mining ban issue in UP has been resolved, which bodes well for demand in the central market. Additionally, strong demand from the central region, led by the affordable housing program in MP and the infrastructure projects in UP, should result in significant increase in off take. Hence, we expect cement demand for PRSC to grow ~5% YoY in 2HFY18 v/s a decline of 3% YoY in 1HFY18.