Update On Prism Johnson Ltd By HDFC Securities
The management indicated that its cement business continues to be on a firm base and upcoming WHRS and clinker expansions will further boost segmental profits. The ailing TBK (Tiles/Bath/Kitchen) segment reported a healthy margin during 2Q/3QFY21, riding on its strong cost controls and new product launches. Prism is confident of TBK EBITDAM at ~11-11.5% in FY22, as the turnaround is sustainable. Prism is also eyeing strong growth in its RMC business, riding on good demand outlook. With the loss-making insurance business going away by 1QFY22, Prism expects to report strong numbers, going forward, and use the free cash flows to deleverage the balance sheet. We do not have a rating on the stock currently.
* In cement business, Prism is de-bottlenecking its clinker capacity by 0.9mn MT to 5.3mn MT by Dec’21E. It would thereafter plan grinding expansion of either 1mn MT in Satna or 2mn MT SGU in UP, by FY24E. By the end of this month, it will also commission the pending 12.5MW WHRS (of the total 22.5MW). The overall cost reduction from WHRS is expected at INR 120/MT. Of this, it has already achieved INR 50-60/MT cost reduction in 3QFY21.
* Prism noted that Satna cluster (~40mn MT capacity) is currently operating at 80% utilisation. Regional cement demand is growing at 10-12% currently. During 9MFY21, Prism’s utilisation remained at 75% vs 80% YoY, impacted by lower sales in COVID-hit 1QFY21. Unitary EBITDA, however, expanded to INR 1,020/MT (+20% YoY).
* Prism has no plans to increase its tiles capacity in the near term from 60MSM currently. It will focus on new product launches, higher utilisation, distribution increase and cost reduction. Bathware and Kitchen together generated ~INR 2bn in revenues (~10% of its total TBK revenues). Over the next 3-4 years, the company expects to increase this to ~INR 5bn.
* Prism expects to deliver ~11-11.5% EBITDA from TBK segment in FY22E, led by strong demand and cost reduction in tiles. During 2Q/3QFY21 OPM increased to 11/14% vs 4/5% YoY respectively.
* Prism expects to grow its RMC revenue to ~INR 20bn over the next 3-4 years vs INR 14bn in FY20. This is a high asset turn and low margin business. The RMC industry in India is expected to penetrate, going forward, on rising cement demand from infrastructure and real estate sectors.
* Prism has sold off its stake in the loss-making insurance business, and it is expected to be offloaded by 1QFY22. It is awaiting regulatory approvals. This will improve the company’s profitability. Prism expects to spend ~INR 4-4.5bn in Capex during FY21-22E, mainly towards the ongoing WHRS and clinker additions and it will use its free cash flows to reduce debt on books.
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