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Our take

Prism Johnson Ltd (Prism) was incorporated in 1992 and is promoted by the Rajan Raheja Group. It is a key cement player in the central Indian region. It has 7 MTPA of cement capacity, a 22.4 MW captive Waste Heat Recovery System (WHRS) and 22.5 MW solar power plant. The company has an established presence in eastern Uttar Pradesh (revenue contribution of ~53%), Madhya Pradesh (revenue contribution of ~25%), and Bihar (revenue contribution of ~22%) markets. Prism's cement business contributes ~46% of overall revenues, which is followed by HR Johnson (tiling and building material business) contributing ~33% while ready-mixed concrete (RMC) and insurance contribute ~16/5% respectively.

The company has been focusing on increasing its captive power plant capacity, which should improve its operating efficiency. Also, we believe further volume growth will be driven by increase in capacity – cement to 7.9 MTPA and tiles to 68 mn m2 – by 2023. Prism has also been working on reducing the debt burden on its balance sheet. Debottlenecking at Satna plant in Madhya Pradesh will increase cement capacity by 0.9 MTPA and clinker capacity by 1.1 MTPA by June’22.

The company further plans to increase grinding capacity (1.0 MTPA at Satna by Sep’23 for a capex of Rs.250 cr) We expect COVID-led lockdown and slowdown in the economy to lead to subdued growth in volumes for Prism in FY22E but buoyant cement prices and aggressive control on variable costs are likely to drive EBITDA growth. The industry has high dependence on real estate and infra, which are likely to be impacted by the economic slowdown. The key growth drivers of demand are likely to be rural housing, Pradhan Mantri Awas Yojana (rural), Pradhan Mantri Gram Sadak Yojana and increased spending on infrastructure development.

Valuation and recommendation

We expect the company to benefit from strong regional presence, improving utilization, and cost efficiencies, apart from industry triggers like higher realizations. We prefer Prism due to its improving margins on the back of substantial ongoing cost reduction and future growth visibility on the back of expansion plans. However, in the short to medium term, demand recovery in core markets continues to be the key monitorable. Also, the divestment of the insurance business should help improve liquidity and profitability.

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