EUR 120.00 For Business Accounts Only

MOSL: PRISM JOHNSON (Buy)-Healthy margins in cement-TBK and RMC suffer

PRISM JOHNSON: Healthy margins in cement; TBK and RMC suffer

(PRSMJ IN, Mkt Cap USD0.7b, CMP INR93, TP INR110, 19% Upside, Buy)

 

• Healthy realizations drive cement profitability: 1QFY20 revenue inched up 1% YoY (-10% QoQ) to INR15.1b (in line with our est.). Cement volumes grew a modest 2%YoY. However, combined cement & clinker volume declined ~7% YoY, which can be attributed to a sharp fall in clinker volumes. Cement Division's EBITDA/t improved to INR1,111 as against INR1,009 in 1QFY19, mainly due to higher realizations offsetting the overall increase in costs.
• TBK reports EBIT loss; RMC EBIT impacted by high cement prices: TBK's revenue increased 6% YoY to INR4.2b. Segment volumes increased 3% YoY. TBK reported EBIT loss of INR73m in 1QFY20 v/s EBIT loss of INR92m in 1QFY19. RMC sales stood at INR3.7b (-1% YoY). RMC reported EBIT of INR9m in 1QFY20 v/s EBIT of INR106m in 1QFY19; the decline was mainly due to the steep increase in cement prices. EBITDA for PRSMJ increased 2%YoY (flat QoQ) to INR 1.85b (v/s our est. INR1.73b), with margins at 12.3% (+0.2pp YoY; +1.3pp QoQ). PAT at INR656m (-7%YoY) was in line with our estimate.
• Key highlights from management presentation: (1) Out of the 15MW solar power planned capacity, 6MW was commissioned during the quarter. Balance capacity and additional 10MW solar capacity will be commissioned during the year. (2) In the case of 22.5MW WHRS, work in progress is on schedule and commissioning is expected by Jun'20.
• Valuation and view: We reduce our PAT estimate for FY20 by 5% to build in higher depreciation impact from the current quarter. Our estimate for FY21 remains largely unchanged. Our SOTP value for PRSMJ is INR110/share. We value the cement business at 6.5x Jun'21 EV/EBITDA; RMC at 6x Jun'21 EV/EBITDA and the TBK business at 1x EV/Sales. Maintain Buy.