ICRA maintains fundamental grade '4' for Prism Cement

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ICRA maintains fundamental grade '4' for Prism Cement

ICRA Equity Research Service has come out with its report on Prism Cement (PCL). The research firm has maintained the fundamental grading of '4' and valuation grading of 'C' to the company in its January 25, 2012 report.

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ICRA Equity Research Service has come out with its report on Prism Cement (PCL) . The research firm has maintained the fundamental grading of '4' and valuation grading of 'C' to the company in its January 25, 2012 report.

Prism Cement's (PCL)'s standalone revenues rose by 35% on a YoY basis and 12% on a QoQ basis to Rs. 1,138 crore for the quarter ending December 2011 (Q3 FY12), mainly on account of the capacity expansions and improvement in cement realizations during the quarter. The EBITDA margins expanded ~210 bps YoY to 9.7% in Q3 FY11 due to significant YoY improvement from Rs 206 to Rs. 649 EBITDA/Ton for the cement division. Overall, the company reported Rs. 22.5 crore net profits for the quarter after Rs. 89 crore net losses during H1 FY12. Overall, with sequential improvement in operating performance, we maintain PCL's Fundamental Grading of '4' indicating "Strong Fundamentals" and Valuation Grading of 'C' indicating "Fairly valued" on a relative basis.

PCL's cement division reported a robust 85% YoY revenue growth in Q3 FY12 driven primarily by capacity expansion through the commencement of the Satna-II unit, enhancement in the market reach to utilize the additional capacities and improved realizations (up 29% on QoQ basis) on the back of strong demand revival post monsoons. Besides improvement in realizations, reduced power consumption at the newly commenced Satna-II unit and lower freight costs due to favorable rail-road mix resulted in ~1130 bps increase in EBITDA margins on a YoY basis to 18.21% during Q3 FY12. The EBITDA/Ton increased from 206 Rs/Ton in Q3 FY11 to 649 Rs/Ton in Q3 FY12. Despite the 8-10% increase in linkage coal prices due to the recent price revision by Coal India (15-20% coal requirement of PCL is met through linkage coal currently), we expect the EBITDA margins to hold on Q4 FY12 due to the tailwinds expected during seasonally strongest quarter of the year.

The TBK division reported a relatively muted 8% YoY revenue growth during Q3 FY12 due to 3% decline in volumes and 11% increase in realizations. The EBIT margin have declined ~510 bps from 6.5% in Q3 FY11 to 1.4% in Q3 FY12 on account of increase in raw material costs (zircon prices up ~60% YoY and Feldspar prices up 10-15% YoY), sharp rise in power and fuel costs (up 33% on YoY basis) and higher freight cost (up 18% on YoY basis). Overall, aggressive capacity expansions by large players and competition from unorganised players are expected to constrain realizations, while the operating cost pressures stemming from rising raw material costs and fuel (RLNG/LPG) prices are expected to keep margins muted over the medium term.

The RMC division reported a healthy 24% YoY revenue growth to Rs. 292 crore in Q3 FY12, helped by healthy volume growth (up 14% on YoY basis) as well as improvement in realizations (up 8% on YoY basis). The EBIT Margins for the division has declined from 3.9% in Q3 FY11 to 2.2% in Q3 FY12 due to limited pass-through of higher raw material prices, although the same have improve on sequential basis post the monsoon season. Overall, with low penetration levels and increasing quality consciousness amongst the end-users, demand prospects for RMC business are expected to remain favorable over the long term.

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To read the full report click on the attachment