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MOSL: PRISM JOHNSON (Buy)-Cement division set for better profitability-TBK segment profitability to increase

Prism Johnson: Cement division set for better profitability; TBK segment profitability to increase, led by utilization improvement

(PRSMJ IN, Mkt Cap USD0.6b, CMP INR105, TP INR137, 30% Upside, Buy)

 

• Cement division EBITDA is likely to see 21% CAGR over FY18-20, led by pricing improvement in underlying markets of Central India as also higher proportion of premium sales for PRSMJ. In the medium term, split grinding unit and WHRS are likely to drive cost efficiencies, helping to maintain healthy margin trajectory.
• TBK segment should see healthy margin improvement in FY20 (currently 3.8%), led by higher utilization in the standalone business. Additionally, effective marketing initiatives, product innovation, and tightening of working capital should ensure improvement in return ratios.
• The RMC business, which had reported an EBIT loss in 1HFY18, has seen improvement in 2HFY18, led by the infra boom in the country. We expect the trend to continue. Low base should ensure healthy improvement in profitability over FY18-20. High asset turnover of the segment should keep returns attractive.
• We expect margin expansion of 4.4pp over FY18-20, which should drive EBITDA CAGR of 34%. PRSMJ should be able to reduce its net debt/EBITDA from 4.6x in FY18 to 2x in FY20. We value PRSMJ at INR137/share (EV of USD115/ton, 9x FY20E RMC EBITDA, and 16x FY20E TBK EBITDA).