ICRA Equity Research Service has come out with its report on Prism Cement. The research firm has maintained the fundamental grading of '4' and valuation grading of 'C' to the company in its January 25, 2012 report.

Prism Cement's stand-alone revenues rose by 35 per cent on a Y-o-Y basis and 12 per cent on a Q-o-Q basis to Rs. 1,138 crore for the quarter ending December 2011 (Q3 FY12), mainly on account of the capacity expansions and improvement in cement realizations during the quarter. The EBITDA margins expanded 210 bps Y-o-Y to 9.7 per cent in Q3 FY11 due to significant Y-o-Y improvement from Rs 206 to Rs. 649 EBITDA/Ton for the cement division. Overall, the company reported Rs. 22.5 crore net profits for the quarter after Rs. 89 crore net losses during H1 FY12. Overall, with sequential improvement in operating performance, we maintain PCL's Fundamental Grading of '4' indicating "Strong Fundamentals" and Valuation Grading of 'C' indicating "Fairly valued" on a relative basis.

PCL's cement division reported a robust 85 per cent Y-o-Y revenue growth in Q3 FY12 driven primarily by capacity expansion through the commencement of the Satna-II unit, enhancement in the market reach to utilize the additional capacities and improved realizations (up 29 per cent on Q-o-Q basis) on the back of strong demand revival post monsoons. Besides improvement in realizations, reduced power consumption at the newly commenced Satna-II unit and lower freight costs due to favorable rail-road mix resulted in 1130 bps increase in EBITDA margins on a Y-o-Y basis to 18.21 per cent during Q3 FY12. The EBITDA/Tonne increased from 206 Rs/Tonne in Q3 FY11 to 649 Rs/Tonne in Q3 FY12. Despite the 8-10 per cent increase in linkage coal prices due to the recent price revision by Coal India (15-20 per cent coal requirement of PCL is met through linkage coal currently), we expect the EBITDA margins to hold on Q4 FY12 due to the tailwinds expected during seasonally strongest quarter of the year.

The TBK division reported a relatively muted 8 per cent Y-o-Y revenue growth during Q3 FY12 due to 3 per cent decline in volumes and 11 per cent increase in realizations. The EBIT margin have declined 510 bps from 6.5 per cent in Q3 FY11 to 1.4 per cent in Q3 FY12 on account of increase in raw material costs (zircon prices up 60 per cent Y-o-Y and Feldspar prices up 10-15 per cent Y-o-Y), sharp rise in power and fuel costs (up 33 per cent on Y-o-Y basis) and higher freight cost (up 18 per cent on Y-o-Y basis). Overall, aggressive capacity expansions by large players and competition from unorganised players are expected to constrain realizations, while the operating cost pressures stemming from rising raw material costs and fuel (RLNG/LPG) prices are expected to keep margins muted over the medium term.

The RMC division reported a healthy 24 per cent Y-o-Y revenue growth to Rs. 292 crore in Q3 FY12, helped by healthy volume growth (up 14 per cent on Y-o-Y basis) as well as improvement in realisations (up 8 per cent on Y-o-Y basis). The EBIT Margins for the division has declined from 3.9 per cent in Q3 FY11 to 2.2 per cent in Q3 FY12 due to limited pass-through of higher raw material prices, although the same have improve on sequential basis post the monsoon season. Overall, with low penetration levels and increasing quality consciousness amongst the end-users, demand prospects for RMC business are expected to remain favorable over the long term.