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India’s Largest Integrated Building Materials Company
Company Description
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.
Investment Rationale
⇒ Cement capacity expansion to lead robust volume growth
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.
⇒ Favourable Regional Exposure
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.
⇒ Strong Brand Equity in TBK Business
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.
Valuation Summary
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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India’s Largest Integrated Building Materials Company
Company Description
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.
Investment Rationale
⇒ Cement capacity expansion to lead robust volume growth
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.
⇒ Favourable Regional Exposure
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.
⇒ Strong Brand Equity in TBK Business
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.
Valuation Summary
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.
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