Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

India I Equities

Jaspreet Singh Arora+9122 6626 6727

jaspreet@rathi.com

Manish Valecha +9122 6626 6552

manishvalecha@rathi.com

Surbhi Lodha surbhilodha@rathi.com

Building Material

Result Update `

Rating: Buy Target Price: `90 Share Price: `74

Key data PRSC IN / PRIS.BO52-week high / low `90 / `23 Sensex / Nifty 26108 / 77803-m average volume US$0.3m Market cap `37.2bn / US$620m Shares outstanding 503.4m

Shareholding pattern (%) Sep’14 Jun’14 Mar’14

Promoters 74.9 74.9 74.9 - of which, Pledged - - -Free Float 25.1 25.1 25.1 - Foreign Institutions 3.8 3.0 2.8 - Domestic Institutions 7.9 7.9 3.7 - Public 13.4 14.2 18.6

20 October 2014

Prism Cement

Subdued quarter; 2H to be better; Buy

Key takeaways

Strong cement growth. Prism Cement’s (Prism) realizations, at `3,920/ton (as estimated), rose 5% yoy (flat qoq). Aggregate cement volumes were up 14% yoy (down 13% qoq), to 1.34m tons, led by demand recovery in markets of operations. Cement revenue, thus, grew 20%. EBITDA per ton came in at `315 (2QFY14: -`180, 1QFY15: `600); adjusted for one-time income of `170m, it was `180, in line with estimate. Cost-saving measures such as usage of pet coke (instead of coal), coal from captive mine in MP (available till Mar’15), and stabilisation of Line 2 at Satna - kept cost inflation in check.

RMC revenue up 7%. RMC revenue rose 7% yoy, led by early signs of recovery in the construction sector. The company reported EBIT margin of -1.5% (-1% yoy), due to lower capacity utilisation and rise in costs (chiefly fuel). After few plants got demobilized during the quarter, the company is planning to relocate its unused/underutilized assets at new locations. Thus, with rise in utilisation, performance is expected to improve.

TBK revenues up 16%. Strong growth in TBK revenues was on the back of higher capacity utilization (+80%) post implementation of the cost saving measures, and intensive activities on the marketing front. PBIT margin was a low 0.1% (-1.2% yoy), as part of the operations had to run on high-cost fuels due to disruption in gas supply from GAIL. With higher capacity utilization and more sales of value-added products, profitability could rise in 2HFY15.

Our take. 2QFY15 EBITDA was in line with estimate. PAT got a boost from �170m of one-time income from refund of earlier year charges in cement division. Adjusted PAT was in line with estimates. We expect profitability to improve in 2HFY15 and FY16, driven by improved performance across divisions, mainly cement. With no major capex planned, focus on debt reduction continues. Turnaround in profitability and lower debt could improve RoE and RoCE over FY14-16. Our target is based on 9x FY16e EV/EBITDA on a consolidated basis. Risk. Lower cement prices.

Year-end: Mar FY15e FY16e

Sales (`m) 56,547 64,317Net profit (`m) 68 1,800 EPS (`) 0.1 3.6Growth (%) (103.1) 2,548.8 PE (x) 548.2 20.7 EV/EBITDA (x) 14.0 8.1 P/B (x) 3.7 3.2 RoE (%) 0.7 16.6 RoCE (%) 7.7 16.0 Net gearing (x) 1.9 1.5 Source: Anand Rathi Research

Year-end: Mar 2QFY14 2QFY15 % yoy 1HFY14 1HFY15 % yoy

Sales (`m) 11,514 13,320 15.7 22,825 27,159 19.0 EBITDA (`m) (261) 404 (254.9) 86 1,531 1,688.6 EBITDA margin (%) (2.3) 3.0 531 0.4 5.6 526 EBITDA per ton (`) (181) 316 (274.9) 18 468 2,515.0 Interest (`m) 614 643 4.7 1,163 1,292 11.0 Depreciation (`m) 433 330 (23.8) 861 696 (19.2)Other income(`m) 100 105 5.1 146 190 29.8 Tax (`m) (58) (96) 66.3 (163) (32) (80.6)Adjusted PAT (`m) (1,151) (368) (68.1) (1,630) (235) (85.6)Reported PAT (`m) * 176 (198) (212.5) (303) (65) (78.5)Source: Company, Anand Rathi Research * Including extraordinary income/expense

20 October 2014 Prism Cement – Subdued quarter; 2H to be better; Buy

Anand Rathi Research 27

Quick Glance – Financials and Valuations Fig 1 –Income statement (`m)

Year-end: Mar FY13 FY14 FY15e FY16e FY17e

Net revenues 47,427 49,443 56,547 64,317 73,826 Revenue growth (%) 5.8 4.3 14.4 13.7 14.8 - Op. expenses 45,085 48,244 52,546 57,581 64,693 EBIDTA 2,342 1,199 4,001 6,736 9,133 EBITDA margin (%) 4.9 2.4 7.1 10.5 12.4 - Interest expenses 1,903 2,415 2,500 2,600 2,650 - Depreciation 1,598 1,766 1,800 1,900 1,950 + Other income 313 303 400 450 500 - Tax (235) (462) 33 886 1,661 Effective tax rate (%) 28.3 36.1 33.0 33.0 33.0 Reported PAT (595) (816) 68 1,800 3,372 +/- Extraordinary items (16) (1,402) - - -+/- Minority interest - - - - 1.00 Adjusted PAT (611) (2,218) 68 1,800 3,372 Adj. FDEPS (`/sh) (1.2) (4.4) 0.1 3.6 6.7 Adj. FDEPS growth (%) 124.5 263.0 (103.1) 2,548.8 87.4 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY13 FY14 FY15e FY16e FY17e

PAT (611) (2,218) 68 1,800 3,372 + Non-cash items 1,361 1,299 1,800 1,900 1,950 Cash profit 750 (919) 1,868 3,700 5,322 - Incr./(Decr.) in WC 1,649 (1,994) 2,459 237 239 Operating cash-flow (899) 1,075 (591) 3,463 5,083 - Capex 2,736 2,405 1,500 1,500 1,500 Free cash-flow (3,635) (1,330) (2,091) 1,963 3,583 - Dividend - - - 418 784 + Equity raised 22 1,402 (0) - - + Debt raised 3,305 (231) 1,921 - - - Investments (118) (310) 310 - - - Misc. items - - - - - Net cash-flow (190) 150 (480) 1,544 2,799 + Op. cash & bank bal. 565 375 525 45 1,589 Cl. cash & bank bal. 375 525 45 1,589 4,388 Source: Company, Anand Rathi Research

Fig 5 – EV/EBITDA band

Source: Bloomberg, Anand Rathi Research

Fig 2 – Balance sheet (`m) Year-end: Mar FY13 FY14 FY15e FY16e FY17e

Share capital 5,034 5,034 5,034 5,034 5,034 Reserves & surplus 5,864 5,047 5,115 6,496 9,085 Net worth 10,897 10,081 10,149 11,530 14,118 Minority interest - - - - -Total Debt 17,160 16,929 18,850 18,850 18,850 Def. tax liab. (net) 919 452 452 452 452 Capital employed 28,976 27,462 29,451 30,832 33,421 Net fixed assets 20,934 21,573 21,273 20,873 20,423 Investments 3,782 3,473 3,782 3,782 3,782 - of which, Liquid - - - - -Net working capital 3,885 1,892 4,351 4,588 4,827 Cash and bank balance 375 525 45 1,589 4,388 Capital deployed 28,976 27,462 29,451 30,832 33,421 Net debt 16,785 16,404 18,805 17,261 14,462 WC days 24 21 20 25 23 Book value (`/sh) 22 20 20 23 28 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `74 Year-end: Mar FY13 FY14 FY15e FY16e FY17e

P/E (x) NA NA 548.2 20.7 11.0 P/CEPS (x) 49.7 NA 19.9 10.1 7.0 P/B (x) 3.4 3.7 3.7 3.2 2.6 EV/EBITDA (x) 23.1 44.8 14.0 8.1 5.7 RoE (%) (5.3) (7.8) 0.7 16.6 26.3 RoCE (%) 2.7 (2.0) 7.7 16.0 22.4 Fixed Asset turnover (x) 1.5 1.5 1.6 1.7 1.9 Dividend yield (%) - - - 1.0 1.8 Dividend payout (%) - - - 20.0 20.0 Interest exp./Sales 4.0 4.9 4.4 4.0 3.6 Debtors (days) 37 39 37 37 37 Revenue growth (%) 5.8 4.3 14.4 13.7 14.8 EBITDA growth (%) (1.9) (48.8) 233.9 68.3 35.6 PAT growth (%) 124.5 263.0 (103.1) 2,548.8 87.4 EPS growth (%) 124.5 263.0 (103.1) 2,548.8 87.4 Source: Company, Anand Rathi Research

Fig 6 – Segment-wise break-up – FY13 and FY14

Source: Company, Anand Rathi Research

20 October 2014 Prism Cement – Subdued quarter; 2H to be better; Buy

Anand Rathi Research 3

Result Highlights Fig 7 – 2QFY15 Actual vs Expectation Quarterly results (YE: Mar) 2QFY15 2QFY15e % var 2QFY14 % yoy 1QFY15 % qoq

Sales (`m) 13,320 13,725 (2.9) 11,514 15.7 13,839 (3.7)EBITDA (`m) 404 441 (8.3) -261 (254.9) 1,127 (64)EBITDA margin (%) 3.0 3.2 (18) (2.3) 531bps 8.1 (510)EBITDA per ton (`) 316 198 59.4 (181) (274.9) 601 (47)Interest (`m) 643 648 (0.8) 614 4.7 648 (1)Depreciation (`m) 330 366 (9.9) 433 (23.8) 366 (10)Other income(`m) 105 100 5.1 100 5.1 85 25 PBT (`m) (463) (473) (2.1) (1,208) (61.7) 197 (336)Tax (`m) (96) (142) (32.6) (58) 66.3 64 (249)Adj. PAT (`m) (368) (331) 31 (1,151) (128) 132 (87)Rep. PAT (`m) (198) (331) (40.3) 176 (212.5) 132 (249)Source: Company, Anand Rathi Research.

Fig 8 – Segment-wise performance Segment (` m) 2QFY14 2QFY15 % yoy 1HFY14 1HFY15 % yoy

Revenue

-Cement 4,377 5,249 19.9 9,206 11,250 22.2

-TBK 4,520 5,224 15.6 8,378 10,124 20.8

-RMC 2,748 2,946 7.2 5,442 5,977 9.8

Total 11,644 13,419 15.2 23,025 27,351 18.8

Less Inter segment 50 42 (16.7) 91 85 (6.5)

Net sales 11,594 13,378 15.4 22,934 27,265 18.9

PBIT

-Cement (536) 340 (163) (534) 1,128 (311.4)

% of Sales (12.2) 6.5 1,871 (5.8) 10.0 1,582

-TBK 1,270 6 (99.5) 1,211 26 (97.9)

% of Sales 28.1 0.1 (2,799) 14.5 0.3 (1,420)

-RMC (22) (43) 91.5 (17) (41) 140.7

% of Sales (0.8) (1.5) (64) (0.3) (0.7) (38)

Total 713 303 (57) 660 1,112 68.5

Less: Interest & Finance 614 643 4.7 1,163 1,292 11.0

Less: Other Net unalloc. exp. (20) (47) 133.5 (37) (83) 121.1

PBT (After extraordinary) 118 (293) (348.3) (466) (97) (79.2)

Source: Company, Anand Rathi Research.

Key developments

Prism is planning a new cement plant at Kurnool District of Andhra Pradesh, for which the mine development activities are in progress while the project activities will be taken at an appropriate time. We don’t expect any work to be initiated in FY15-16.

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 18 October 2014)

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Date Rating TP (`)

Share Price (`)

1 21-Jan-13 Hold 55 48 2 10-Jul-13 Buy 50 34 3 09-Oct-13 Buy 40 28 4 12-Feb-14 Buy 32 23 5 21-Mar-14 Hold 32 34 6 04-Apr-14 Hold 35 38 7 09-Jul-14 Buy 90 73

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.

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Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below:

Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5%

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