Recommendation From Cement Sector
This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon
PRISM JOHNSON LIMITED
CEMENTING A STRONG FUTURE
HERE IS WHY
Diversified source of revenues
Premium products’ volume continues to improve
Margins to improve with the installation of 15 MW solar Plant
The cement industry is one of the crucial industries for any economy on which country builds its infrastructure and growth. In that respect, the Indian cement industry is the secondlargest cement producer in the world after China with a total installed capacity of approximately 480 million tonnes per annum (MTPA). Despite this, India still needs to cover lot of distance to fulfil its infrastructure needs. Therefore, we chose Prism Johnson Ltd. as our low-priced scrip.
Prism Johnson Limited (PJL) is one of the integrated building materials companies, with a wide range of products from cement, ready-mixed concrete, tiles and bath products. The company has three divisions, viz. cement, H & R Johnson (India), and RMC (India). Its cement division caters mainly to the markets of East Uttar Pradesh, Madhya Pradesh and Bihar. It has a wide marketing network with about 4,250 dealers serviced from approximately 170 stock points. The cement segment contributed 46.5 per cent to the total revenue mix of the company in the 1st quarter of FY20. H & R Johnson (India) is a pioneer of ceramic tiles in India. For over five decades, HRJ has various product categories to offer. It has a capacity of over 68 million sq. metres per annum spanning across 13 manufacturing plants across the country. It contributed 29.85 per cent to the total revenue mix of the company in the 1st quarter of FY20. The RMC division manufactures readymixed concrete. This division currently operates 93 ready-mix concrete plants in 44 cities or towns and contributed 23.65 per cent to the total revenue mix of the company in the 1st quarter of FY20.
On a consolidated basis, the total income from operations rose by 3.24 per cent to Rs.1,580.65 crore in the 1st quarter of FY20 from Rs.1,530.92 crore in the same period of FY19. The modest growth was due to slowdown in the real estate sector. Nonetheless, what was good was that premium products’ volumes continued to improve and were at around 19 per cent of the overall cement volumes. The EBITDA too remained flat at Rs.175.34 crore in the June quarter of FY20 from Rs.175.92 crore in same quarter previous year. Its EBITDA margin stood at 11.09 per cent in the June quarter of FY20, exhibiting contraction of 40 bps. The net profit of the company reduced 19 per cent to Rs.51.04 crore in the June quarter of FY20 from Rs.62.97 crore in the same quarter of FY19 due to increased material consumption cost as well as other expenses.
During the quarter the cement division has commissioned 6 MW of solar power out of the 15 MW planned capacity. Balance capacity and additional 10 MW solar capacity would be commissioned during the year. Work in progress in case of 22.5 MW WHRS is on schedule and commissioning is expected by June 2020. This will save power cost of the cement division, which was Rs.30-40 per ton till the previous quarter. It indicates that the management is focusing on improving utilisation and cutting cost.
The government is expected to pursue its development agenda more seriously to support economic reforms through rapid growth in infrastructure across housing, rail, road, waterways and highways. Hence, increased government spending and incentives to housing, especially in the affordable segment, should lead to growth in the cement sector from this fiscal, which will help PJL to increase its market share. By virtue of these factors, we recommend our reader-investor to BUY this stock.