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Prism Johnson Ltd : High-cost pressure persists; tile expansion on track; retaining a Buy Says Anand Rathi Shares and Stock Brokers
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High-cost pressure persists; tile expansion on track; retaining a Buy
High costs at all its divisions curtailed Prism Johnson’s Q2 performance. While the tile expansion is on track, the cement capacity expansion is expected to be delayed due to the high-cost situation. The wind power capacity expansion would help contain costs. We retain our Buy rating, with a lower TP of Rs.152 (earlier Rs.155).
Cement division, high-cost pressure. While high costs continue to hamper the performance, healthy realisation growth partially helped. In Q2, cement revenue grew 17% y/y to Rs6.5bn (volumes up 5%, realisations 11.5%). EBITDA/ton plunged 75% y/y to Rs242 on higher costs and non-availability of linkage coal. The share of green power was 34%. Expansions in the cement division are on hold due to present high-cost context.
HRJ/RMC muted performances. HRJ’s revenue grew 8% y/y to Rs5.33bn. Domestic tile volumes declined 2.7%, while export volumes plunged 52.8%. The EBIT margin declined 435bps on higher gas prices and lower utilisation. The RMC division’s revenue grew 14%, but it reported a Rs209m EBIT loss.
Expansion. The company plans to add greenfield tile capacity of 5.5m sq.mtrs. at Panagarh, West Bengal, by Jun’23, and 1.2m sq.mtrs. at Morbi, Gujarat, by one of the joint ventures by Mar’23. It is planning to set up 24MW wind power capacity by Dec’23 at Rs252m for cement division.
Business outlook, Valuations. With the ongoing RQBE share-divestment agreement terminated, the company continues to evaluate future prospects. Consolidated net debt (excl. RQBE) was Rs14bn at 30th Sep’22. We expect 12% and 14% CAGRs over FY22-25 in revenue and EBITDA respectively. We maintain our Buy rating, with a lower target price of Rs.152 on a sum-of-parts valuation as we roll forward to FY25. Risks: Rise in pet-coke/diesel prices; demand slowdown.
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