Prism Johnson surges 13% on hopes of improvement in operational performance

Rating agencies expect the profitability of PJL's to improve in FY24 owing to softening in input procurement costs coupled with cost savings

Shares of Prism Johnson (PJL) surged 13 per cent to Rs 130.30 on the BSE in Wednesday's intra-day trade amid heavy volumes on expectation of improvement in operational performance.

The stock is trading at its highest level since December 2022. It had hit a 52-week high of Rs 143.80 on September 20, 2022. At 12:12 pm, PJL was quoting 11 per cent higher, as compared to 0.05 per cent decline in the S&P BSE Sensex. The average trading volumes on the counter jumped over five-fold today with a combined 3.9 million equity shares having, so far, changed hands on the NSE and BSE.
 

PJL is an integrated building materials company with a wide range of products such as cement, ready-mix concrete (RMC), tiles and bath products. The PJL group currently has four divisions - Cement, HRJ, RMC and RQBE General Insurance Co. It has a track record of six decades in ceramic tiles in India and is the second-largest player in the industry.

For the financial year 2023-24 (FY24), CRISIL Ratings expects PJL’s earnings before interest, taxes, depreciation, and amortization (Ebitda) margin to improve to 7.5-8.5 per cent driven by cost reduction in the cement division with decline in power and fuel cost on account of lower input prices and benefit of investments made in green energy in cement division. Profitability of tiles division is also expected to improve with expected reduction in gas prices next fiscal.

India Ratings and Research (Ind-Ra), too, expects PJL to continue to witness high single-digit demand growth in FY24, led by the housing and infrastructure segments in the central India markets. Furthermore, the rising share of PJL’s premium branded cement (9MFY23: 31.2 per cent, FY22: 29 per cent, FY21: 27.7 per cent) should support realisations.

It expects the profitability to improve in FY24 owing to softening in input procurement costs coupled with cost savings arising from an increase in the proportion of green power (9MFY23: 45MW, 32.1 per cent-share of green power) with the addition of a 24MW wind mill.

During the first nine months of fiscal 2023, the consolidated Ebitda margin moderated to 4.1 per cent compared to 8.8 per cent in the corresponding period of the previous fiscal due to decline in profitability of the cement division owing to rise in petcoke/ coal prices and planned shutdown in some plants during the third quarter. Operating profitability was also lower in the tiles division due to rise in gas prices.

The HR Johnson (HRJ) division witnessed a turnaround in fiscals 2021 and 2022 as seen in EBITDA margin improving to double digits (barring quarters impacted due to the pandemic) from 3-4 per cent during fiscals 2018 to 2020. "However, operating profitability was impacted during fiscal 2023 due to high gas prices witnessed across the industry. But, with expected reduction in gas prices, and focused efforts on increasing utilisation and capacity, Ebitda margin should improve from current levels," it said.
CRISIL Ratings expects the net debt to Ebitda ratio to further moderate to 3.5-4.0 times in fiscal 2023 due to lower operating profitability. Net debt to Ebitda ratio is expected to improve to below 2 times fiscal 2024 onwards on account of higher operating profitability and repayment of debt obligation. Liquidity remains strong, with cash and equivalents of approximately Rs 190 crore as on February 14, 2023, along with a policy to prepay or refinance a large part of the term debt a year in advance, the rating agency said in rationale.