5 November 2019
2QFY20 Results Update | Sector: Cement
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
39.3 / 0.6
104 / 62
TP: INR100 (+28%)
Significant miss led by higher costs
Cement profitability increases 4% YoY:
2QFY20 revenues declined 2% YoY
to INR13.1b (in line with est.). Cement and clinker volume growth declined
~6% YoY due to heavy monsoons and overall economic slowdown. Cement
division’s EBITDA/t (+4% YoY) was lower than expected at INR615 (v/s est.
INR967/t) due to higher costs.
TBK and RMC report EBIT loss:
TBK’s revenue remained flat YoY at INR4.1b,
while segment volumes increased 1% YoY. TBK’s EBIT loss came in at
INR103m in 2QFY20 (v/s loss of INR63m in 2QFY19). 2QFY20 RMC sales
stood at INR3.5b (+2% YoY); RMC EBIT loss came in at INR45m (v/s EBIT of
INR18m in 2QFY19) due to lower utilization levels during the quarter.
EBITDA increased 3% YoY (-55% QoQ) to INR826m (v/s est. INR1.4b), with
margin at 6.3% (+0.3pp YoY; -6pp QoQ). Company reported net loss of
INR88m (v/s est. INR308m profit), as against INR70m profit in 2QFY19.
Key highlights from management presentation:
(1) The Board has decided
to simplify the corporate structure by merging a few subsidiaries into
standalone, subject to necessary approvals. (2) Prism has commissioned
7.5MW of solar power capacity. Work in progress in case of 22.5MWWHRS
is on schedule and commissioning is expected by Jun’20
Sales/EBITDA/PAT increased 0%/ 2%/-26% YoY. We
expect sales/EBITDA/PAT for 2HFY20 to increase 6%/ 1%/-14%. Operating
cash flow in 1HFY20 turned to -INR251m (v/s INR3.3b for 1HFY19) due to
higher working capital, which increased on account of higher inventory 6
days, receivables of 2 days and decline in payables by 7days.
Valuation and view:
We have reduced our EBITDA estimate for FY20/FY21
by 10%/5% to build in higher costs from the current quarter. As a result, our
PAT estimate for FY20 has reduced by 36% (also due to higher depreciation
and interest from current quarter). Our SOTP value for PRSMJ is
INR100/share. We value the cement business at 7x FY21 EV/EBITDA; RMC at
6x FY21 EV/EBITDA and TBK business at 1x FY21 EV/Sales. Maintain
Financials & Valuations (INR b)
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com); +91 22 7199 2309
Pradnya Ganar - Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 6129 1537
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.