Cement business showed better results in Q1; -18/9% change in FY21/22e Ebitda; TP up to Rs 52; ‘Add’ retained.
Prism Johnson (PRSMJ) has announced the divestment of its entire 51% stake in Raheja QBE General Insurance Company for an aggregate consideration of Rs 2.9 bn by Mar’21. The divestment of loss-making subsidiary would result in increased consolidated Ebitda from FY22e and lower debt. Besides, PRSMJ disclosed operational performance during Q1FY21e which shows better performance by cement, while TBK/RMC still remains impacted.
The company was able to reduce standalone net debt by Rs 2.7 bn during Q1FY21, backed by improved collections across all three businesses. Factoring in lower growth in TBK/RMC, we cut our FY21e Ebitda by 18%, while we raise FY22e Ebitda by 9% owing to divestment of insurance subsidiary and increase our TP to Rs 52 (earlier: Rs 37), based on 6xFY22e EV/E also aided by lower debt. Maintain Add.
Divestment of stake in insurance subsidiary for Rs 2.9 bn: The board has approved divestment of its entire holding in RQBE to QORQL Pvt. Ltd (majorly owned by Vijay Shekhar Sharma and Paytm). The insurance subsidiary has revenue of Rs 1.9 bn, Ebitda loss of Rs 0.6 bn and networth of Rs 1.54 bn in FY20.
PRSMJ cement volumes declined 20% y-o-y in Q1FY21 with volumes having improved y-o-y in May-Jun’20. The recovery in volumes was better than anticipated in the beginning of the year owing to pre-monsoon pent-up demand. Currently, both the plants at Satna are running at 100% utilisation.
The share of premium products also increased by 7% y-o-y to 26% in Q1FY21.
TBK division revenue declined 65% y-o-y in Q1FY21 with increasing trend of sales in May and Jun’20. Couple of PRSMJ owned manufacturing plants and most JVs resumed operations; however, overall production activities remain subdued.
RMC division revenue declined 80% y-o-y in Q1FY21 as urban demand is yet to recover. Majority of RMC plants and aggregate locations remained shut in Q1FY21 owing to the lockdown.
Standalone net debt declined by Rs 2.75 bn to ~Rs 12 bn as at Jun’20-end. With improving performance and sale of stake in insurance subsidiary, we estimate consolidated net debt to decline by Rs 3.6 bn over FY20-FY22e to Rs 14.7 bn by FY22e.