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Prism Cements
Strong foundation
Company profile
Prism Cement is one of the largest integrated building materials companies,
with a wide range of products from cement, ready-mixed concrete, tiles, bath
products to kitchens. The company has three divisions of operations: Cement,
H & R Johnson, and RMC Readymix. It also has a 74% stake in Raheja QBE
General Insurance Company Limited, a JV with QBE Group of Australia.
Key drivers
Close to consumers: The company's historical EBIDTA margins of 34% are
amongst the highest in the industry due to a strong distribution network, low
market lead distance of 340–370kms, low power consumption per ton and
better product mix. It is very close to its customers in Bihar and UP, which
constitute 82% of total sales.
Raw material integration: 60% of the coal requirement is met through a coal
linkage from Coal India while it currently procures the rest through open
market. However, it has been allocated a coal block in Chhindwara District of
Madhya Pradesh and it has received clearance from the Ministry of
Environment & Forests for production. The company is in the process of
evaluating offers from contractors and machinery suppliers. This should help
cap its production costs.
Strong FCF generation (preferably FCF yield above 8%): The company
has recently expanded its cement and clinker capacity at Satna from 3m tons
to 6.6m tons per annum. The plant is expected take another quarter to
stabilise. It does not have any major capex plans which will utilize cash. It can
easily generate FCF of more than 10% in the next few years.
Prism Cement Aide Memoire
Operational Issues
1. What are your cement demand assumptions and what cement sales volume assumptions do you have for the next two
years?
2. What is the ramp up schedule of the new capacity? At what utilisation has this plant been operating at currently? What
strategy will Prism use to sell, and will you push more volume or would you like to maintain prices?
3. What is the coal linkage position for the new facility? How much time will you take to develop the captive mine? Has the
company placed orders with equipment manufacturers?
Funding Issues
1. How much debt does the company have currently? What is the repayment schedule for this debt? How much capex is
planned for FY12 and FY13 and how does the company plan to fund it?
Strategic Issues
1. What was the rationale behind the purchase of tiles business?
2. What are your thoughts on consolidation in the cement space?
3. What is your strategy for coal procurement, particularly with supplies from Coal India under linkage showing a declining
trend. What are plans for captive coal blocks?
4. What strategy will you employ in surplus market conditions – volume maximisation or pricing? What capacity utilisation will
you run your new capacities?
5. Do you have comments on oversupply, and which region you expect to be hit the most in 2011 and 2012. When do you
expect oversupply to play out? What demand rate do you expect for FY12 onwards? What do you attribute to the low
demand in FY11?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Prism Cements
Strong foundation
Company profile
Prism Cement is one of the largest integrated building materials companies,
with a wide range of products from cement, ready-mixed concrete, tiles, bath
products to kitchens. The company has three divisions of operations: Cement,
H & R Johnson, and RMC Readymix. It also has a 74% stake in Raheja QBE
General Insurance Company Limited, a JV with QBE Group of Australia.
Key drivers
Close to consumers: The company's historical EBIDTA margins of 34% are
amongst the highest in the industry due to a strong distribution network, low
market lead distance of 340–370kms, low power consumption per ton and
better product mix. It is very close to its customers in Bihar and UP, which
constitute 82% of total sales.
Raw material integration: 60% of the coal requirement is met through a coal
linkage from Coal India while it currently procures the rest through open
market. However, it has been allocated a coal block in Chhindwara District of
Madhya Pradesh and it has received clearance from the Ministry of
Environment & Forests for production. The company is in the process of
evaluating offers from contractors and machinery suppliers. This should help
cap its production costs.
Strong FCF generation (preferably FCF yield above 8%): The company
has recently expanded its cement and clinker capacity at Satna from 3m tons
to 6.6m tons per annum. The plant is expected take another quarter to
stabilise. It does not have any major capex plans which will utilize cash. It can
easily generate FCF of more than 10% in the next few years.
Prism Cement Aide Memoire
Operational Issues
1. What are your cement demand assumptions and what cement sales volume assumptions do you have for the next two
years?
2. What is the ramp up schedule of the new capacity? At what utilisation has this plant been operating at currently? What
strategy will Prism use to sell, and will you push more volume or would you like to maintain prices?
3. What is the coal linkage position for the new facility? How much time will you take to develop the captive mine? Has the
company placed orders with equipment manufacturers?
Funding Issues
1. How much debt does the company have currently? What is the repayment schedule for this debt? How much capex is
planned for FY12 and FY13 and how does the company plan to fund it?
Strategic Issues
1. What was the rationale behind the purchase of tiles business?
2. What are your thoughts on consolidation in the cement space?
3. What is your strategy for coal procurement, particularly with supplies from Coal India under linkage showing a declining
trend. What are plans for captive coal blocks?
4. What strategy will you employ in surplus market conditions – volume maximisation or pricing? What capacity utilisation will
you run your new capacities?
5. Do you have comments on oversupply, and which region you expect to be hit the most in 2011 and 2012. When do you
expect oversupply to play out? What demand rate do you expect for FY12 onwards? What do you attribute to the low
demand in FY11?
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