Motilal Oswal said Prism Cement's tiles, bath, kitchen (TBK) segment should see a margins improvement in second half of FY18/FY19, led by its higher utilization, product mix improvement and new product launches.
Prism Cement share price rallied nearly 4 percent intraday Tuesday after Motilal Oswal has maintained buy call on the stock with a target price of Rs 130 per share (implying 17 percent upside), citing better second half of FY18.
The research house feels cement demand for the company is likely to grow 5 percent YoY in second half of FY18, led by resolution of the sand mining issue in UP, a favourable base of second half of FY18 (was impacted by demonetisation) 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 margin improvement for the cement division in second half of FY18/FY19, it believes.
"Prism Cement is a pure play on a recovery in central India, which is likely to see strong improvement in profitability, driven by higher consolidation in the region over the last 12-18 months. Additionally, the region is likely to see no meaningful capacity addition over the next 18-24 months. However, there could be some pricing volatility over the next 2-3 quarters due to the ramp-up of Jaiprakash Associates' assets. However, the key monitorable would be a turnaround in TBK profitability, which has also seen a marked improvement in Q2FY18," Motilal Oswal said.
It further said Prism Cement's tiles, bath, kitchen (TBK) segment should see a margins improvement in second half of FY18/FY19, led by its higher utilization, product mix improvement and new product launches.
According to the research house, the company is likely to generate strong earnings CAGR over FY17-20, led by an improvement in cement profitability on the back of pricing improvement and positive operating leverage, and a turnaround of TBK (standalone) due to positive operating leverage, a better product mix and an improved sales focus.
Hence, it expects margin improvement of 5.6 percentage points over FY17-20, which should drive EBITDA CAGR of 29 percent.At 15:16 hours IST, the stock price was quoting at Rs 112.50, up Rs 2.10, or 1.90 percent on the BSE.