Buy Prism Cement: KJMC

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KJMC Research is bullish on Prism Cement and has maintained buy rating on the stock. Considering the growth momentum, decent financial performance and improved realizations per tonne of cement, research firm believes that PCL will generate decent returns for the shareholders riding on higher growth trajectory.  

 

KJMC Institution research report on Prism Cement

 

Prism Cement Limited (PCL) is an ISO 9001:2000 certified company promoted by the Rajan Raheja Group. It operates one of the largest single kiln cement plants in the country at Satna, Madhya Pradesh with an installed capacity of 2.5 mtpa. This plant is equipped with latest technology and has special features like a six-stage low-pressure drop preheater, bucket elevators for silo and kiln feeding, roller presses for cement grinding and electronic packers for cement. The company is using Sophisticated pollution control equipment ensure dust emission levels, which will conform to World Bank standards. The company has installed imported latest technology HEXADUR Rollers from Germany. This technology, first of its kind used in India will increase production capability and reduce power consumption. The company also owns a captive power plant to meet its power requirements. Prism Cement manufactures and markets Portland Pozzollana Cement (PPC) with the brand name 'Champion' and the full range of Ordinary Portland Cement (OPC) of 33, 43 and 53 Grades.

 

Investment Rationale

 

PCL's plant is situated at Satna in Madhya Pradesh which gives it access to Uttar Pradesh and Madhya Pradesh markets. Almost 80% of total sales of the company are contributed by these two states. 

 

PCL is aggressively planning to augment its production capacity by 7.5 mtpa to 15 mtpa over the next 2-3 at a capex of around Rs 1600 crore. 

 

PCL reported impressive results for the quarter ended June 2007. Riding on the back of strong demand witnessed in the Northern states of India, PCL reported a Net Sales growth of 21% yoy to Rs 215 crs (Rs 178 crs) during Q4 June '07. 

 

PCL's Operating Margins during quarter ended June 2007 rose by 1536 bps to 50% (35%). While the higher average cement realisation had a major role to play in dictating the improved performance, improvement in Power Costs (as a percentage of sales) helped the company report this performance. Operating profits during quarter ended June 2007 increased 74% yoy to Rs 109 crs (Rs 63 crs). 

 

Aided by 83% yoy decline in Interest expenses and a 152% rise in Other Income, Profit before Tax was higher by 83% yoy to Rs 101 crs (Rs 55 crs) during quarter ended June 2007. Net profit of the company increased by 82.5% to Rs 65 crs (36 crs) during quarter ended June 2007.

 

Valuations

 

At current market price of Rs 56.35, PCL is trading at 6.44x year ended June '07 EPS. Considering the growth momentum, decent financial performance and improved realizations per tonne of cement, we believe that PCL will generate decent returns for the shareholders riding on higher growth trajectory.