Buy Prism Cement; target of Rs 54.70: BP Equities

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Buy Prism Cement; target of Rs 54.70: BP Equities

BP Equities is bullish on Prism Cement and has recommended buy rating on the stock with a target of Rs 54.70 in its June 28, 2011 research report.

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BP Equities is bullish on Prism Cement and has recommended buy rating on the stock with a target of Rs 54.70 in its June 28, 2011 research report.

"Prism Cement Limited (PCL) is India's largest integrated building materials company with a wide range from cement, ready-mixed concrete, tiles, bath products to kitchens. The company recently merged H & R Johnson (India) and RMC Readymix (India) with Prism Cement. The company also has a 74% stake in Raheja QBE General Insurance Company Limited, a JV with QBE Group of Australia."

"Prism Cement has completed its brownfield cement capacity expansion of 3.6 MTPA in December 2010 enhancing its total cement capacity to 5.6 MTPA due to which we expect the cement & clinker sales volume to grow at ~29% CAGR (FY10-FY13E) to 6.2 MTPA. The company is also in the process to set up a greenfield plant of 4.8 MTPA capacity in Andhra Pradesh in 2012 which would benefit the company in the cement up-cycle. The company has a strong presence in Central India and Eastern India with ~80% and ~15% exposure respectively. Pace of demand in the markets of the company's interest is expected to remain robust going forward on the back of the government's continued thrust on infrastructure and housing in these regions and the company expects robust growth in demand from rural and tier-2 city housing and infrastructure from these regions. The demand-supply situation of cement is the most balanced in the Central region unlike other regions in India where there is a supply glut."

"The company's Tile Bath & Kitchen (TBK) division, H&R Johnson, is India's premier tile company since 1958 and has the largest distribution network and strongest brand equity in the country which we believe will help the business to grow at ~ 15% CAGR (FY11-FY13E). The TBK division follows a business model of 35% own manufacturing, 55% joint ventures and 10% outsourcing which we believe will act as a catalyst for the business to achieve higher ROCE (~18%-20%) along with the company's core strength of strong distribution network and brand equity. At CMP of Rs 44.5 the stock is trading at a P/E of 8.2x, P/BV of 1.5x and EV/EBITDA of 4.3x for FY13E representing a significant discount to its peers. We believe PCL's revenues will grow at a CAGR of over 25% over FY10-FY13E on back of synergies achieved between the business divisions which will create efficiencies and improve margins. We have arrived at a SOTP target price of Rs 54.7 for PCL which represents a 23% upside from CMP. We hereby initiate coverage on Prism Cement with a "Buy" recommendation and a target price of Rs 54.7," says BP Equities research report.

Non-Institutions holding more than 90% in Indian cos

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