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INSTITUTIONAL RESEARCH HDFC sec Cement & Building Materials Investor Forum

Key takeaways

4 July 2019

Rajesh Kumar Ravi [email protected] +91-22-3021-2077

Jay Gandhi [email protected] +91-22-6171-7320

Rohit Harlikar [email protected] +91-22-6639-3036

CORPORATES MCap (Rs bn)

Unlisted Cement companies & Industry expert

Bharati Cement NA

Emami Cement NA

MyHome Industries NA

Wonder Cement NA

Holtec Consulting (Industry expert) -

Listed companies : Cement and Cement based products

Orient Cement 21.9

Prism Johnson 46.1

Sanghi Industries 16.6

NCL Industries 5.9

Visaka Industries 5.9

Building Materials Companies

Cera Sanitaryware 38.5

Century Plyboards 38.4

HSIL 17.1

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Cement & Building Materials

In our recently concluded H-Sec Investor Forum, we hosted CXOs of more a dozen companies from the Cement & Building Materials space. We had representation from both listed and unlisted cement companies, a major project consultant to the cement industry and from varied building materials’ manufacturers.

The cement companies we hosted (both listed and unlisted) came in from all the regions – North (Wonder Cement), Central (Prism Johnson), East (Emami Cement), West (Sanghi Industries) and South (Bharathi Cement, MyHome Ind and NCL Ind). Orient Cem‘s sales is well spread across west and south markets. Thus, the interactions provided detailed check on the regional demand supply dynamics. The project consultant (to the cement industry) also added valuable insights on the Indian cement sector.

Even in the building materials space, we hosted leading companies from the Fibre cement sheets and Asbestos roofing (Visaka Ind), Plywoods (Century Plyboards), and Sanitaryware & Faucets (Cera Sanitaryware and HSIL).

Unlisted cement companies and industry consultant: Over the past 10 years, many unlisted companies set up capacities and are now prominent names in their respective regions. These companies have also been investing in backward integration to become cost competitive. We noticed gearing is particularly higher in case of unlisted players – largely owing to fast pace of their expansion. The companies expect their gearing to reduce over next 3-5 years, as asset turn increases along with margin expansions. Despite weak demand in 1QFY20, the CXOs were gung-ho on demand and margin outlook from medium to long term perspective. The industry consultant also highlighted many finer details related to capacity and cost infrastructure. While

getting project clearances have eased out, pooling land (for capex) and lease (for limestone mining is getting difficult).

Listed companies – cement and cement based products: Even the CXOs from listed names are bullish on cement demand outlook, which alongwith moderation in the fuel prices will be margin accretive for the industry as a whole. As per them, cement demand in 1QFY20 has been hit by the central election, labour shortage and soaring heat conditions during the quarter. However, they expect demand across all markets to accelerate post monsoon. All CXOs (listed + unlisted) concurred that the cement price increase during Feb-May 2019, was a necessity to pass on the sharp input cost escalation in the preceding two years. As pace of new capacity addition is expected to remain benign, industry’s pricing power should improve. Companies are looking forward to a strong 1HFY20 profitability despite subdued volumes, as pricing improved and costs moderated QoQ. The cement based product company – Visaka Industries is further strengthening its leadership position in the high growth fibre cement board market.

Building Materials companies: Building Materials sector went through a tough phase for last two years due to rising competition in low-mid product segment, lower pricing by unorganised players and slowdown in real estate industry. Competition from unorganised players is expected to subside post NGT’s order to shut down ceramic companies using coal gasifiers. Also, government initiatives like Swachh Bharat Abhiyan, Housing for all, UDAN Regional Connectivity Scheme, ‘Infra Status’ to real estate industry should boost demand for Sanitaryware, Plywood, Tiles, etc. Further, growth of tourism, retail and services industry will pave the way for incremental demand for commercial space, aiding higher demand for tiles and sanitary ware products.

Cement & Building Materials Investor Forum

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Unlisted Cement Companies &

Industry Expert

4


CORPORATE ATTENDEE: Mr. Anoop Kumar Saxena, CEO

Key takeaways:

Vicat Group is a 165 year old MMC. It is a closely held listed company. It is a very conservative group and has a strong balance sheet backed by a large cash balance. Vicat Group owns 51% in Bharathi Cement (head-quartered in Hyderabad).

Bharathi Cement has 8.2mn MT of cement capacity across two locations AP and Karnataka. It is also adding a 1.7mn greenfield split grinding plant at Vizag (railway siding also being built) by FY22 at an investment of Rs 4.5bn. Additionally, it is also setting up a terminal in Coimbatore.

Bharathi has 60MW of CPPs and 8MW of WHRS which leads to low cost power supply for the company. Bharathi currently uses 20% of alternative fuel. From the technology and technical point of view they can go upto 100% alternate fuels if availability eases out.

The management noted that all Nalgonda and Kadapa players will continue to target Vizag market.

Bharathi’s CEO expects the new CM of AP to focus more on social projects rather than infra projects and expects the 1st year to be very tough in AP for cement demand. Despite this, he believes some respite from Pollavaram (which will be revived, albeit more modest vision vs. his predecessor) and housing projects will continue to be on track especially given the centre led push.

As compared to AP, Telangana saw good growth and massive irrigation projects in the past govt. Kalleshwaram project was generating cement demand of 20,000 MT every month. In this project the pricing was fixed by the govt. (~Rs 50/MT lower than B2B category A-pricing) and was suited for nearby players who

could supply at lower freight costs.

In the southern region, there are three clusters of limestone reserves of which the Tamil Nadu cluster reserve is dying and in the next 10-15 years, only grinding units would remain in Tamil Nadu. The Gulbarga cluster which supplies to AP/ Telangana will see brown-field investments however Greenfield expansions look difficult.

Bharathi expects consolidation to continue in the industry as fringe players will not survive for long and this will lead to price stability in the long run. Across AP, Telangana and Karnataka, it envisages consolidation to happen in for 18-20mn MT of capacity.

In 1QFY20 the south volumes are expected to be muted YoY also given the high base effect. In Jun-Jul 19 could see stable pricing.

There has generally been a Rs 20-30/MT pricing differential in Orissa vs South. Historically prices here have been good. There is a constraint of railway movement from the clinker capacities in Chhattisgarh.

As per the co, capacity ramp-up of JPA assets by UltraTech last year had led to supply pressure leading to price weakness, even in south. In Maharashtra competition between UltraTech and ACC/Ambuja impacted prices. The situation has normalized over the past few months which led to price recovery.

Our view: Bharathi Cement is a strong franchise in the south markets, as it is delivering robust operating margins, owing to its good brand presence and cost controls. It is also a net cash company and should remain so as it does have any major expansions underway.

Bharathi Cement Strong on margins and balance sheet

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Bharathi Cement

Dec ending (Rs mn) CY14 CY15 CY16 CY17

Net Revenue 11,670 11,498 11,732 12,803

EBITDA 2,251 3,760 3,501 3,147

EBITDA margin (%) 19.3 32.7 29.8 24.6

APAT 1,333 2,231 2,016 1,914

APAT margin (%) 11.4 19.4 17.2 14.9

EPS (Rs) 16.8 28.2 25.5 24.2

Op Cashflow 1,198 1,571 1,792 2,560

Free cashflow 190 1,111 1,243 2,034

Fixed asset turnover (x) 0.7 0.7 0.7 0.7

Net D/E (x) (0.3) (0.3) (0.3) (0.4)

RoCE (%) 6.2 9.8 8.2 7.3

Key Financials

Source : Company, HDFC sec Inst Research

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CORPORATE ATTENDEE: Mr Vivek Chawla, CEO

Key takeaways: Headquartered in Kolkata, Emami Cement has 3mn MT of clinker

capacity in Risda, Chhattisgarh and 8mn MT of grinding capacity spread across Chhattisgarh, West Bengal, Bihar, and Odisha.

Emami has 240mn MT of limestone reserves in Risda. It also has 200mn MT limestone reserves in Rajasthan and 50 mn MT in AP.

The co has applied for environment clearance for expanding its clinker capacity in Risda by 2mn MT and expects this plant to be operational in early FY22. Meanwhile, it would buy clinker from market to for its surplus grinding capacity across Odisha and Bihar.

Emami has tied up with Tata Steel for slag supply to its Cuttack plant (close to Tata Steel plant). It is currently sourcing slag at Rs 1100/MT. Emami will increase slag cement production at this plant from 50% slag cement and 50% PPC currently. Company plans to increase the production of PSC cement, thus increasing its cement to clinker ratio to almost 2x by early FY21.

Emami’s grinding unit in Durgapur is close to thermal power plants which ensure easy availability of fly-ash. It is also sourcing slag from Burnpur.

In FY19, Emami sold 4.6mn MT of cement/clinker and reported EBITDA of Rs 2.1bn (Rs 457/MT). Its trade/non-trade mix currently stands at 64/34%. Blended cement share stands at 80%+ (of which slag cement is 8% and this will go up).

Over the last 3 years, its dealers’ network has increased to 3500. The company earlier offered higher dealers discount. Emami’s pricing and discounts currently are in-line with the industry.

The company’s current sales mix stands as follows: West Bengal 27%, Chhattisgarh 24%, Orissa 17%, Bihar 10%, Jharkhand 10%, and Maharashtra & MP Total 11%.

In FY20, Emami is targeting 7mn MT of sales volume and expects to generate EBITDA of Rs 5.1bn (implying unitary EBITDA of Rs 730/MT. This will be driven by better pricing since start of Q1FY20, lower slag prices and better operating leverage.

Currently gross/ net debt are high at Rs 32/30bn due to ongoing expansions. Of the proposed IPO of Rs 10bn, Rs 4bn is OFS by the promoters while the rest Rs 6bn would be new capital issuance.

Co expects demand in the eastern region to grow 7-8% CAGR during FY18-23E.

Our view: Emami has grown at a fast pace and is further adding capacities. This has led to high leverage on the books currently. Production ramp-up alongwith price uptick, improving product mix and higher utilization led cost reduction are expected to boost margins. Equity infusion (through IPO or strategic investor) are critical to reduce its net gearing.

Emami Cement


March ending (Rs mn) FY15 FY16 FY17 FY18

Net Revenue 252 253 1,681 9,850

EBITDA 235 206 (332) 612

EBITDA margin (%) 93.1 81.2 (19.7) 6.2

APAT 3 16 (378) (785)

APAT margin (%) 1.2 6.2 (22.5) (8.0)

EPS (Rs) 0.0 0.1 (1.6) (3.2)

Op Cashflow 237 (97) (863) 543

Free cashflow (4,418) (8,854) (6,612) (4,312)


Net D/E (x) 1.4 1.8 2.1 3.0

RoCE (%) 1.5 0.6 (1.7) (0.3)

Key Financials

Asset sweating to kick in

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CORPORATE ATTENDEE: Mr Devjit Das, CFO

Key takeaways:

The unlisted MyHome Industries is part of MyHome Group, promoted by Mr Rameshwar Rao. The group is present across many businesses – construction, cement, power and education.

Headquartered in Hyderabad, MyHome Industries hosts the cement business in JV with CRH, Ireland. MyHome has 9.6mn MT of cement capacity. There are no plans to add more cement capacity in near term.

It also has 80MW of CPP, 12MW of WHRS and 10MW of solar power plants, which largely meets its electricity requirements.

It has 5mn MT of clinker capacity which operated at 100% utilization in FY19 and the company is expanding its Telangana clinker capacity by 1mn MT by Dec 2019.

MyHome plants are spread in Telangana, AP and Tamil Nadu. It sells under the brand name of Maha Cement.

In FY19, it sold 6.8mn MT of cement (+20% YoY volume growth) aided by strong demand across south and east markets, leading to grinding utilization of 70%.

The company sells 50% OPC and the rest is PPC and slag cement. Freight is 90% road based and rest rail based.

Weak pricing in the south amid rising cost pressure during FY17-19, led to its unitary EBIDTA decline from Rs 900/MT in FY16 to about Rs500/MT in FY19. However, in Q4FY19, strong price recovery led to unitary EBIDTA of Rs 800-850/MT. In Apr-May 2020, margin further expanded by about Rs150-200/MT QoQ.

MyHome is a net cash cement company as its FY18 net debt/equity stood at (0.8x).

South market outlook: Owing to low utilization in south, pricing discipline is very fragile in the south markets. Pricing in the adjoining Odisha markets is also volatile due to large supply influx from AP/T markets.

Our view: Stability of recent price hikes across south alongwith lower input cost pressure should help MyHome profitability to recover in FY20. As the company does not have major capex in near, its free cash generation should surge.

MyHome Industries



Net Revenue 22,446 22,651 20,212 23,359

EBITDA 3,468 4,430 3,421 3,554

EBITDA margin (%) 15.5 19.6 16.9 15.2

APAT 970 2,206 1,782 2,511

APAT margin (%) 4.3 9.7 8.8 10.7

EPS (Rs) 15.2 34.5 27.8 39.2

Op Cashflow 3,870 4,102 3,626 3,730

Free cashflow 2,925 2,837 548 2,858


Net D/E (x) 0.2 0.0 (0.1) (0.1)

RoCE (%) 9.5 8.5 6.7 5.2

Key Financials

Margin uptick to boost free cash flow

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CORPORATE ATTENDEE: Mr Jagdish Toshniwal, MD

Key takeaways: Headquartered in Udaipur, Wonder Cement is promoted by the RK

Marble group. Mr Vimal Patani heads the cement business for the group.

Over the past nine years, Wonder Cement has set up a 9mn MT of cement capacity with 5.5mn MT of clinker capacity (end FY19). It has an integrated cement plant in Rajasthan and a 2mn MT split grinding unit in Maharashtra.

In 2QFY20, it is commissioning a third clinker line of 2mn MT and will also be adding a split grinding unit in Dhar (MP) by end of 2019. It is also adding another 2mn MT in Jhajjar (Haryana) by end of 2020. Thus, by end of FY21, its clinker/cement capacity will increase to 13/8.5 mn MT respectively.

Wonder’s 40/18MW of CPP/WHRS in Rajasthan largely meets its power requirements. Wonder is also increasing its CPP/WHRS by 30/12MW alongwith the third clinker line in Rajasthan.

Wonder’s limestone reserves of 430mn MT is sufficient for next 35 years on the expanded capacity.

Currently, Wonder Cement sells in about nine states – Rajasthan 40%, MP 25%, Gujarat 15-20%, other parts of north 15% and Maharashtra 5%. In FY19, Wonder sold ~55% in trade segment. Its lead distance is about 400kms.

During FY19, Wonder cement sold ~6.5mn MT of cement (~20% YoY) at unitary EBITDA of Rs 730/MT. While its north plant operated at 95% utilisation, the Maharashtra grinding unit is still to ramp-up production. Wonder sources clinker for this unit from Rajasthan.

During FY11-18 period, Wonder has generated average unitary EBITDA of Rs 900/MT, aided by its good brand premium and cost efficiencies.

Cement demand has slowed down in1QFY20, owing to labour migration during the election time and slowdown in near capex spends. However, the management expects growth to recover post monsoon. It expects north demand to grow at 8% in FY20.

Management expects its Q1FY20 EBITDA margin should expand by around Rs400/MT QoQ, driven by strong price recovery in QoQ and input cost moderation. With high clinker utilisation in the north/central regions, pricing is expected to remain buoyant.

Petcoke prices have cooled off from USD95/MT to USD 80-85/MT over the past 3-4 months.

The ongoing clinker, grinding and power infra projects will require total capex of Rs 18.5bn to be spent during FY19-21E.

Current networth stands at Rs 6.5bn and the promoters are looking to infuse another Rs1.5-2bn in the company. Gross debt will peak out at ~Rs22-23bn in FY21 amid on-going expansions. The company guided that post these expansions, it will focus on production ramp-up and debt reduction.

Our View: Wonder Cement has also grown at a fast pace and that has led to increase in debt on books. As the expansions is still on , leverage will continue to remain high until FY21E. However, with Wonder’s strong operating margin should boost co’s op cash flows. This alongwith expected equity infusion should help de-lever the balance sheet. Wonder has good sales distribution in the lucrative north and central markets.

Wonder Cement Major expansions about to get over

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Wonder Cement


Net Revenue 10,260 12,059 16,098 22,295

EBITDA 2,401 2,526 4,501 4,924

EBITDA margin (%) 23.4 20.9 28.0 22.1

APAT (108) 420 563 622

APAT margin (%) (1.1) 3.5 3.5 2.8

EPS (Rs) (0.3) 1.0 1.3 1.4

Op Cashflow 2,372 2,928 4,174 4,153

Free cashflow (2,897) (3,493) 1,527 579


Net D/E (x) 3.2 3.1 2.7 2.5

Core RoCE (%) 3.7 3.9 6.8 4.9

Key Financials


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CORPORATE ATTENDEE: Mr Pradeep Mittal, Head – Business Consulting

Key takeaways:

Holtec Consulting is credited with creating 300mn MT of cement capacity in India & abroad (across 95 countries)

In general for the industry to sustain – clinker & cement capacity have to be in sync. Holtec estimates 12mn MT of clinker capacity addition over the next two years of which majority will be in Central and Southern regions and somewhat in western.

Clinker capacity addition is dependent on limestone availability. Some large players like Ambuja, Dalmia, JK, ACC and Orient will go for new lines/expansion at places where they have excess limestone availability.

Earlier getting limestone deposit was much easier but now it is dependent on the auction of which the timing is not fixed. Land acquisition is also taking more time than earlier and has become more difficult. On the other hand the obtaining environmental approvals have become faster.

New limestone deposits are away from the existing infrastructure. Other hindrances include area under forest cover/ national park. In the years to come, companies will have to explore underground limestone mining. Currently even if deposit is 10metres down, the mining cost becomes very high because of the large quantum of overburden.

The declared limestone reserves in India in FY19 are 50bn MT.

Cement industry currently accounts for ~5% of total CO2 emission in India.

OPC capacity is one of the key parameters based on which quantity of cement may vary. For OPC, an integrated cement plant costs about Rs7.5bn for 1mn MT capacity. Standalone clinker plant accounts for almost 80% of the project cost. A grinding unit costs about Rs 2.5bn for 1mn MT of OPC Cement.

Capex timeframe- Post approvals, zero date is taken when token advance is given to equipment supplier. An integrated unit can be commissioned in minimum 14-15 months.

The focus is more on efficiency now with more and more players adopting WHRS. The major thrust of most companies now is on waste heat recovery systems. WHRS has a 4 year payback period and the capital cost is Rs 90-95mn/MW. The operating cost is practically zero.

Globally, Indian cement industry is among the most fuel efficient. The industry continues to improve its efficiency metrics. the western countries, waste materials comprise large chunk of fuel, while it is still very low in India due to logistics challenges. Increase in waste material has potential to reduce costs.

For grinding, Ball mill is an old technology which is robust but is power inefficient. On the other hand, Roll press and Vertical mills are more energy efficient. While Roll press is marginally more efficient than Vertical mills, Roll press units generally come in smaller capacity (200 TPD) higher capacity unit in case of Roll press (600 TPD). If moisture content is high in input materials then Vertical mills is more efficient in grinding the same.

(continued on next page)

Holtec Consulting

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Key takeaways - continued:

While the entire African and Middle East equipment demand have largely gone to the Chinese players, Indian promoters still prefers European equipment as they are available at similar prices to the Chinese. In the past Indian companies have resorted to buying Chinese equipments only when the lead time for European ones was significant and to bridge the temporary time gap.

Kiln is the only subsystem that is functioning 24/7 as it takes 3days each to start and cool down the kiln. Refractory lining is done atleast once a year which takes 30days and hence normally only 330 days are considered for annual s.

Holtec expects an average 7-8% annual growth this year. About 60% of the demand is driven by the housing sector and 40% from the industrial and other schemes. Schemes like 'Housing for all' etc will continue or support demand from the housing segment.

View: Mr Mittal shared very interesting and insightful perspective on demand and capacity trends, Indian cement industry’s continued focus on further enhancing its cost metrics as well as to remain the most fuel efficient of all. He also highlighted the various challenges faced by the industry.

Holtec Consulting

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Listed Companies

Cement & Cement Based Products

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CORPORATE ATTENDEES: Mr Deepak Khetrapal, MD & CEO and Mr Rajendra Mishra, COO

Key takeaways:

Orient’s installed capacity is 8mn MT across 3 plants – North Telangana, North Karnataka and Jalgaon (Maharashtra).

The co highlighted that its Karnataka plant has fully stabilized and in Q4FY19, it operated at 100% utilization. This plant is now the most efficient cement plant in India, as per the company.

The company sells 45% in Maharashtra, 30% in AP/T, followed by Karnataka (15%) and MP & others (10%). Major growth in the recent past has come from the non-trade segment (now 50% of sales mix). Earlier Orient used to sell more in the trade segment.

Aggressive volume push in south and Maharashtra dragged down cement prices in these regions for past several quarters. Hence despite improving efficiency, orient delivered weak performance during 2017/2018.

The recovery in pricing started Feb-19 onwards reflected in EBITDA rebound to ~ Rs 850/MT in 4QYF19 despite only two months of strong pricing. Orient believes this performance is a proof of its efficiencies as there was no other significant change adopted by the Company to benefit from the increased pricing. Company has historically seen Rs 1000/MT+ EBITDA too.

Cement demand in Q1FY20 has been disappointing, impacted to heat waves, water shortage and labour shortage (led by the central election). Management expects demand to improve in H2FY20, if monsoon is normal and led by govt thrust on infra projects.

The new CM of AP – Mr Reddy cancelled all infra projects which were cleared in just before the elections. This has disrupted construction work currently. However the industry is hopeful the

progressive CM will soon clear these projects, thus boosting demand.

The Kaleshwaram project is a massive irrigation project, which will improve water availability across Telanagana and Maharashtra and boost rural cash-flows in the long term. In near term, completion of this project will slow down cement demand in the AP.

While cement prices rose further during April and May, the same has come off owing to weak demand. However, cement prices are still higher QoQ in Q1FY20. Thus, with stable fuel and freight costs, margins will further increase from Q4FY19 levels.

Orient is working to increase alternate fuel usage to further improve its costs. It is adjusting its equipments to handle large quantity of alternate fuels. In FY21, it plans to generate 10% of its energy requirement from alternate fuel. It is also evaluating adding a solar/WHRS plant to reduce opex.

Company will take up expansion projects in calibrated manner to sustain volume growth. Orient’s 1st priority is to add a 1.5mn MT grinding mill at Devapur (current site).This will help Orient utilize 0.5mn MT excess clinker availability at Devapur. Orient is also working towards a 2mn MT split grinding unit 500Kms from the Devapur plant and a 2mnMT clinker unit in Devapur. All these projects would entail total capex of Rs 21.5bn and are expected to be fully operational by FY22E. The grinding mill will come much earlier. Post these expansions, Orient will look to increase its plant capacity in Karnataka.

View: We remain bullish on Orient Cement, owing to its cost leadership, recovery in pricing in its markets and as Orient remains focused on calibrated growth capex, to keep leverage under check. We value the co at 8x FY21E EBITDA, leading to our TP of Rs 140/ sh (implied replacement value of USD 80/MT.

Orient Cement (CMP Rs 107, Mcap Rs 21.9bn, TP Rs 140, BUY)

Multiple triggers

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Orient Cement

March ending (Rs mn) FY17 FY18 FY19P FY20E FY21E

Net Revenue 18,748 22,223 25,222 28,147 30,369

EBITDA 1,781 3,052 3,120 4,804 5,202

EBITDA margin (%) 9.5 13.7 12.4 17.1 17.1

APAT (321) 442 476 1,654 1,991

APAT margin (%) (1.7) 2.0 1.9 5.9 6.6

EPS (Rs) (1.6) 2.2 2.3 8.1 9.7

Op Cashflow 2,588 2,610 2,763 4,084 4,760

Free cashflow 1,526 1,140 1,502 2,284 (240)

Fixed asset turnover (x) 0.8 0.9 0.9 1.0 1.0

Net D/E (x) 1.3 1.3 1.2 1.0 0.9

RoCE (%) 1.4 5.1 5.0 9.7 10.4

RoE (%) (3.2) 4.4 4.6 14.7 15.5

EV/EBITDA (x) 19.3 11.4 11.0 6.9 6.7

P/E (x) NM 49.6 46.1 13.3 11.0

Key Financials


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CORPORATE ATTENDEE: Mr Munzal Shah, Head IR

Key takeaways:

Cement Business

Prism’s current clinker/cement capacity are 5mn MT/ 7mn MT. Prism cement plant operated at 90% utilization in FY19 as its volume grew 11% YoY to 6.3mn MT.

Prism sells 80% in trade and rest in non-trade. OPC is currently only 10% in the cement production. Its cement EBITDA also soared to nine year high level of Rs834/MT.

The Satna cluster is well poised and with a 90% existing utilization and no major supply coming in it’s a seller’s market currently. This cluster is seeing a continuous price increase since Nov-17.

Prism expects to deliver 4-5% vol growth in FY20 against a 7-8% estimated for the industry overall. Since Prism is already at 90% utilization it won’t be chasing volumes. This year Prism is focusing more on improving realizations rather than focusing on demand.

The co is working on various initiatives that will lead to ~Rs 150/MT of power cost reduction over next 15 months. Prism has invested 25% equity in a 25MW thermal power plant, whereby (rates will be finalized six monthly basis). This would lead to Rs 25/MT of power cost reduction. Prism will have access to 30MW of solar power (15MW in 1QFY20 and 15MW from Q4FY20), at fixed rate of Rs 3.5/KwH for next 25 years. This will lead to Rs 15/KwH cost saving. Prism is also setting up 22.5MW of WHRS (by Q1FY21, Rs 2bn capex). This will lead to Rs 100/MT of power cost reduction.

Decline in pet-coke prices will also lead to cost savings. Some savings have also come from pet-coke and some impact will be seen in 1Q/2QFY20. Last year pet-coke was 60% of the input mix and now can increase to 65-70% of the mix.

In 4QFY19 Prism’s EBITDA/ton was at Rs 960/MT and this will increase in 1QFY20 owing to better pricing (realization is higher by about Rs 200/MT QoQ) and cost reduction.

Prism is planning to invest in a grinding unit either in East UP (2mn MT at Rs 4bn investment) or Southwest Bihar (1-1.3mn ton and Rs 2bn investment). The East UP market currently accounts for 55% of its volumes.

During FY20-22, Prism will invest Rs 2bn during each year, towards these capex and most of these can be done through internal accruals.

Since Nov-17 the Satna cluster is witnessing double digit growth due to normal and pent up demand (which has to come down). Though clinker demand has collapsed in 1QFY20, the cement demand is still holding good in May-June.

New upcoming capacities in central region: UltraTech’s Bara has 2mn MT grinding will come in 1HFY20 and another 2mn MT next year. The KJS and Birla Corp each are adding 1mn MT each of grinding next year. Heidelberg is debottlenecking 0.5mn MT in a phased manner. ACC’s 5mn MT integrated plant is three year away. Prism expects total capacity addition of 12mn tones in the cluster over the next 3 years Prism expects demand will eventually outpace supply.

The premium product strategy has also been working well and Prism hopes to ramp up this as well. This entails Rs 150-200 higher EBITDA/MT and currently the premium segment accounts for 18% of the current volumes.

(Continued on next page)

Prism Johnson (CMP Rs 92, Mcap Rs 46.1bn, NR) Cement and RMC stable, Tiles yet to deliver

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TBK Business

The Johnson brand is 61 year old franchise and of these many years, it was market leader in Indian tiles market for ~54 years before losing out the leadership position in the past 5-6 years.

Prism has put in a lot of initiatives here over the last two years to improve profitability. Mr Chandak, the new CEO of TBK segment has 25 years of experience with long senior level exp with RAK Ceramics and Kajaria. Prism is increasing its value added product mix to drive volume growth and margin expansion.

Prism’s tiles segment operated at 59% utilization in FY19, as volume grew 4% YoY.

Currently there are 11 display centers up and running and Prism expects to take it to 20 by 1QFY21. It is also increase ground level sales influencers to boost volume growth.

Prism feels the macro environment is still a major challenge. Despite this, the NGT ban (on coal based tiles unit in Morbi) should support volume growth for ex-Morbi producers.

Prism expects to deliver 8-10% volume growth in FY20 vs 4% in FY19, primarily driven by better demand in the 2nd half. It also expects EBITDA margin to recover to 5% + vs. 3.3% in FY19. In FY19 the volume and EBITDA were affected by the Kerala floods and transport strike. Co is increasing sales focus in Tamil Nadu also.

Despite challenging times, Prism has not compromised on managing working capital in this business segment. If it had been liberal it feels the vol. growth could have been much better.

From 1st April 2019 – there is an increase of 4-5% tiles prices but simultaneously gas prices have also increased and net-net there is no much impact in pricing due to the NGT ban.

RMC

Currently it is operating at 37% utilization and Prism expects it to increase max to 60-65%.

RMC has high operating leverage and good ROCEs (14%+) due to ~8x asset turnover.

Prism has given a bleak outlook given the existing high cement prices. FY20 is expected to see only a single digit growth. Still it remains a fantastic business. Prism is adding 4-5units each year.

Overall

Prism reported strong 25/35% EBITDA growth YoY in FY18/FY19. Management expects a 20% EBITDA CAGR is sustainable for next two years in a stable environment.

Prism’s standalone/consol debt at the end of FY19 stood at Rs 14.1/18.5 bn. Consolidated D/E came down to 1x from 1.2x in FY17/18. Co expects to reduce debt by at least Rs500mn in FY20 and by higher amount in FY21E.

Co would incur annual capex of Rs 4-4.2bn each year on consolidated basis.

Co has started paying dividends in 2018 and expects to continue with dividend paying going forward.

View: Prism is significantly increasing its cost infrastructure in the cement

business which along with robust pricing power in the central region, bodes well for the segmental and overall profitability . In the Tiles business, Prism is striving hard to improve its product mix and marketing efforts to recover its lost market share and accelerate margin recovery. The uptick in the Tiles business should drive valuations rerating for Prism Johnson.

Prism Johnson (continued)

17


Prism Johnson

March ending (Rs mn) FY15 FY16 FY17 FY18 FY19P

Net Revenue 56,544 52,231 50,125 55,077 61,944

EBITDA 3,536 3,409 3,567 4,431 6,010

EBITDA margin (%) 6.3 6.5 7.1 8.0 9.7

APAT (554) 290 (33) 425 1,052

APAT margin (%) (1.0) 0.6 (0.1) 0.8 1.7

EPS (Rs) (1.1) 0.6 (0.0) 0.8 2.1

Op Cashflow 1,986 4,621 6,757 5,866 6,863

Free cashflow 291 2,485 4,884 2,521 4,375


Net D/E (x) 1.7 1.4 1.2 1.2 1.0

RoCE (%) 4.3 6.0 5.1 6.6 6.9

RoE (%) (4.9) 2.4 (0.1) 3.3 7.8

EV/EBITDA (x) 19.0 19.5 18.0 14.4 10.3

P/E (x) NM 158.6 NM 108.4 43.8

Key Financials


18


CORPORATE ATTENDEE: Mr Aditya Sanghi, Whole Time Director

Key takeaways:

Sanghi Industries currently has 4mn MT of integrated cement capacity in Kutch, Gujarat.

Sanghi has 10% market share in Gujarat, where it sells 85% of its total cement. Sanghi sells most of its cement between Kutch to Baroda (60%, to benefit from low lead distance and has about 40% market share in these markets), and the rest between Baroda and Surat (here Sanghi’s mkt share is only 5%).

The upcoming split GU of 2mn MT at Surat will help increase Sanghi’s market share in these markets (this is a high demand market in Gujarat). Flyash for Surat plant will come from 250kms away. At Surat, Sanghi can also sell GGBS after procuring slag from Essar Steel (currently there are no supply of GGBS in this market).

Cement prices have recovered in the past six months. This should help Sanghi margin to rebound to 20%.While cement prices have been firm in April/May, there has been some Rs5/bag price softening in June. Management expects cement prices to remain stable which should help margins.

Sanghi is among cheapest cement producers, next to Shree Cement. Last year Sanghi had faced cost challenges due to supply disruption from GMDC. As lignite prices have been volatile, Sanghi has started to use imported coal. Petcoke prices are expected to remain low and hence will benefit cement companies. Sanghi klin is capable to consume low to high calorific value fuels and hence is most flexible.

To reduce freight cost, the company has got two cement carrier ships from China. The company has streamlining supply chain issues for the shipping based freight. The Dharamtar packing

terminal is close to JSW Jetty. This unit is used to pack cement for supply to Mumbai area. The cost of cement dispatches to Mumbai market by sea is competitive compared to other suppliers in Mumbai region.

Sanghi has increased its PPC production from almost zero a few years back to 35% currently. Sanghi has aspirations to produce 40% PPC which will further reduce op cost.

Sanghi is an opportunistic seller of clinker, if the margin is above Rs 500/MT, it sells clinker both in domestic and export markets.

The integrated cement expansion in Kutch (3.3mn MT clinker and 2mn MT grinding) and 2mn MT split grinding unit in Surat are all expected to get commissioned between Mar-July 2020. Almost 75% civil work is completed. The raw mill pre-heater will get ready by end of Q2FY20. The kiln has been ordered from China. Post the on-going expansions, clinker/cement capacity will increase to 6.6/8mn MT respectively.

In Gujarat, there are 26mn MT of installed capacities of which 6mn MT of ABG Cement are non-operational. Gujarat supplies cement to Mumbai markets while Rajasthan producers also supply cement in north part of Gujarat.

Infrastructure and low cost housing projects are expected to be the major cement demand drivers. The work on the 4th Reliance refinery can also be a major cement consumption project.

View: With the upcoming capacities in Gujarat, Sanghi will increase its market share in south part of Gujarat and in Mumbai markets. It is also trying imported coal to reduce fuel costs and increased blending cement production to enhance profitability. Aided by recent QIP fund raising and expected improvement in cash generation should keep leverage at modest levels.

Sanghi Industries (CMP Rs 66, Mcap Rs 16.6bn, NR)

Upcoming expansion to bolster leadership in Gujarat

19


Sanghi Industries


Net Revenue 9,323 7,622 9,967 10,264 10,610

EBITDA 1,574 1,512 1,973 2,158 1,540

EBITDA margin (%) 16.9 19.8 19.8 21.0 14.5

APAT 306 764 631 933 526

APAT margin (%) 3.3 10.0 6.3 9.1 5.0

EPS (Rs) 1.4 4.6 2.9 3.7 2.1

Op Cashflow 1,969 1,424 760 2,218 705

Free cashflow 1,226 961 9 (672) (3,102)


Net D/E (x) 0.6 0.5 0.5 0.2 0.4

RoCE (%) 3.9 8.3 7.6 8.2 4.6

RoE (%) 3.4 10.4 5.8 6.9 3.2

EV/EBITDA (x) 13.9 14.4 11.4 9.1 14.9

P/E (x) 54.1 21.7 26.2 17.8 31.5

Key Financials


20


CORPORATE ATTENDEE: Mr N Prasad, CFO

Key takeaways:

Cement business

NCL Industries is headquartered in Hyderabad. The grey cement business comprises 2.6mn MT of clinker (all in Telangana) and 2.7mn MT cement grinding capacity (across two locations in Telangana and AP).

The grinding unit in Kondapalli (AP) produces PPC, owing to its close proximity to the Vijaywada Thermal Power. As it has a railway siding at the plant, incoming clinker freight cost is reduced.

Currently, NCL is selling mostly in AP/Telangana markets. NCL uses only imported coal (primarily from South Africa) and no

petcoke usage. Work on an 8MW WHRS project has started. The EPC is awarded to

Thyssenkrupp. The project will take 16 months with a capex of Rs 1bn. NCL would raise Rs 600mn debt for the same. The project payback period is expected to be four years.

In Q4FY19, NCL recorded Rs 840/MT of EBITDA margin. In Q1FY20, NCL expects its margin to further increase QoQ owing to sustenance of price hikes in March and April and on lower opex.

The completion of the Kaleshwaram project will slow down demand growth in AP/T in near term.

While earlier NCL was selling larger chunk in trade segment, the non trade sales proportion increased to 50% in FY19, owing to large supply to Kaleshwaram and other infra projects. Trade sales’ share will again increase FY20 onwards.

Bison Panel NCL sells its cement boards under the brand name of Bison Boards.

Out of its three lines of 30K MT each, the first two lines are

operating at 100% utilization, while the third line operated at ~15-20% utilization. Production ramp-up from the third line will continue to drive total volume growth over next 3-4 years.

NCL sells its bison boards through its 350 odd dealers present across India. NCL does not indulge in B2B sales.

Bison board is slightly expensive to low-cost commercial plywood and also 10-15% expensive to fibre cement boards (manufactured by Visaka and Everest Ind).

Door segment NCL has sourced the technology and equipments for the door

manufacturing from Turkey. It expects to start commercial production in a few months from now, under the brand name – Dura Doors.

These doors are made of High Density High Moisture Resistance Fibre. The doors are for premium segment and each door is expected to sell at Rs 20K + price.

The door making plant has capacity of 1000 doors per day on three shift basis. NCL has invested Rs 550mn so far in this business. The co is expects to slowly ramp-up door manufacturing operations .

Balance sheet Overall company level gross debt is Rs 2.6n, out of which long term

debt is Rs 1.2bn and rest are working capital. NCL is incurring avg interest rate of 10% on the same. Net debt/equity stands at 0.5x.

View While cement volume growth is expected to slow down in FY20,

owing to completion of the Kaleshwaram project and recent project ordering cancelation by the new CM of AP. However, total profitability should still recover in FY20, led by pricing rebound and cost moderation in cement business. NCL also expects margins to rebound in the boards division, on higher utilisation of the third line. In the longer term, WHRS will reduce op costs and the door segment will start contributing to profits.

NCL Industries (CMP Rs 131, Mcap Rs 5.9bn, NR) Margins recovery led by price and cost stability

21


NCL Industries


Net Revenue 5,339 6,627 7,673 8,804 9,799

EBITDA 700 1,226 1,161 1,331 1,347

EBITDA margin (%) 13.1 18.5 15.1 15.1 13.7

APAT 68 546 547 491 468

APAT margin (%) 1.3 8.2 7.1 5.6 4.8

EPS (Rs) 2.0 14.9 14.9 10.9 10.3

Op Cashflow 850 538 1,141 1,564 800

Free cashflow 846 359 (465) (663) 113


Net D/E (x) 1.4 1.1 1.3 0.4 0.5

RoCE (%) 7.9 17.8 15.4 10.3 9.2

RoE (%) 4.6 32.7 26.9 14.3 9.7

EV/EBITDA (x) 11.5 6.5 7.6 6.0 6.2

P/E (x) 86.6 10.9 10.8 12.1 12.7

Key Financials


22


CORPORATE ATTENDEE: Mr V Vallinath, Whole time director & CFO

Key takeaways:

Visaka Industries (VIL) is Hyderabad based building materials company. It produces cement roofing sheet (asbestos based), cement fibre board (non-asbestos base), and solar roofing panel (under brand name ATUM). It also has a synthetic yarn spinning business.

Roofing segment

VIL is the second largest producer of cement roofing sheets after HIL with installed capacity of 0.8mn MT. It also has pan India presence. VIL has 18% market share in the roofing segment and it has largely remained constant in the past few years.

The demand for roofing sheets is largely driven by people moving up from Kuchh roof towards Puckka roof. This is a low cost substitute to concrete roofing with very long product life. These roofs provide heat insulation too.

This segment is VIL’s cash cow business owing to steady sales and firm 15% OPM outlook. Stable monsoon and INR (vs dollar) are positive triggers for the business.

Fibre Cement board

In this segment, Visaka is the largest producer and seller in India. VIL currently has 0.13 mn MT of installed capacity, spread across Telangana, Maharashtra and Haryana. VIL has pan India distribution for its fibre boards under the brand name VNext.

This product is low cost and superior substitute/ complement to plywood where ever fixed structures are required. Fibre boards are water-proof, termite-proof and have very high fire resistance.

Fibre board is a very big market in the developed economies – USA, Europe and Australia. The fibre board demand in a small country like Thailand is slightly ahead of that in India currently, which suggests the opportunity for this product in India.

In India, the fibre board demand currently is mostly from commercial and industrial segments while residential demand has not picked for the same. The product has also not penetrated beyond major cities to tier-2/3 cities, and hence there is long headroom for this product – more so as modern construction demand picks up. As the fibre board is almost 50% cheaper to marine plywood, this product offers strong value preposition in cost conscious tier-2/3 markets. The market penetration will continue to drive the product demand growth by 15-20% CAGR.

With the commissioning of Jhajjar plant at end of FY19. VIL’s market share in India will further increase from 26% in FY19 to more than 30% in FY20. VIL is adding another 50K MT fibre board plant in Tamil Nadu (by mid- FY21), which will further accelerate its market share.

Sharp increase in pulp prices during FY18/19 pulled down margins below 10%. With pulp prices softening and reduction in lead distance from the Jhajjar plant, margins should recover north of 10% going forward.

(Continued on next page)

Visaka Industries (CMP Rs 373, Mcap Rs 5.9bn, NR) Increasing leadership presence in high growth business

23


Spinning

Visaka has twin-jet spinning machines with total installed capacity of 12.3K MT (based out of Nagpur in Maharashtra), which operated at 92% utilization in FY19.

Visaka’s segmental OPM in FY18 was dragged down to 8% due to GST anomaly (which was later rectified), as against usual margin of 12-16%. The management is hopeful of sustaining segmental margin in this range owing to its premium product positioning and high utilization.

Solar roofing - ATUM

VIL ventured in this segment in FY18, with an intention to providing a green roofing solution. The solar panel is sandwiched on the fibre cement sheets it produces. The end product is a patented product by VIL.

In FY19, this segment generated only Rs 20mn in revenues on a capital employed base of Rs 120mn. The ATUM product has strong growth potential as this can be used for roofing solutions for large warehouses, industrial shades, roof-top sheds, etc. As the solar-roof panels are in smaller sizes, the product can also see good traction in the retail segment.

It is an integrated product which works as a roof and a solar panel. It is a leak proof application. It is resistant to water, fire, termite, and shock. The panels can generate 20%+ extra power as compared to traditional solar panels. The roof has a lifetime of 45-50 years, and solar power generation for 25 years to the extent of 80%. Thus, it offers almost 4x return on investment over 25 years.

View

VIL has been increasing its leadership presence in the high growth potential fibre cement board segment. It is using the internal accruals generated from the asbestos roofing segment (Cash cow business) and Yarn segment (small but niche positioning). Co is also trying to reduce its working capital cycle which will further enhance its return ratios.

Visaka Industries (continued)


Net Revenue 10,211 10,049 9,606 10,123 11,364

EBITDA 959 997 1,273 1,502 1,436

EBITDA margin (%) 9.4 9.9 13.3 14.8 12.6

APAT 212 289 529 666 674

APAT margin (%) 2.1 2.9 5.5 6.6 5.9

EPS (Rs) 13.4 18.2 33.3 41.9 42.5

Op Cashflow 76 892 1,526 880 709

Free cashflow (143) 608 902 (175) 219


Net D/E (x) 0.9 0.8 0.5 0.6 0.5

RoCE (%) 5.3 5.7 8.8 11.2 10.4

RoE (%) 6.4 8.4 14.1 15.9 14.3

EV/EBITDA (x) 9.3 8.7 6.3 5.6 6.0

P/E (x) 27.9 20.5 11.2 8.9 8.8

Key Financials


24


Building Materials

25


CORPORATE ATTENDEE: Mr. Ayush Bagla, Executive Director

Key takeaways:

Management expects its sanitaryware segment (~54% of revenue) to grow at only 7-10% in FY20 due to challenging market conditions whereas overall revenue growth is guided at 13-15%. EBITDA margins of ~15% are sustainable in FY20 as well.

Company is the third largest player in the sanitaryware segment (~21% market share) and believes the top 3 players (together ~70% of market share) command pricing power. Management does not see any significant threat to this market despite the entry of new players as all new players have to start with a 100% exposure to institutional biz wherein profitability remains a challenge.

Every six months company reviews prices and ~3-7% price hike is typically taken on a product-to-product basis. The company took price hikes of 3-5% in sanitaryware and 5-8% in some niche products in Apr’19.

Natural gas cost is ~2% of revenue and is bought from two sources namely GAIL and Sabarmati Gas. About 90% of the company’s power requirement is met from in-house solar/wind assets.

Faucet business (~24% of revenue) is expected to drive half of the growth for FY20 supported by replacement demand which is more than 2x the institutional market, which insulates the faucet business from the cyclicality of real estate and provides a largely consistent earnings profile with better pricing power.

The NGT order in Morbi (Gujarat) directing the shutdown of all ceramic units that run on coal gasifiers has improved the pricing power of branded tile manufacturers, the benefits of which should play out over the next 12-24 months. Tiles segment contributes ~20% to revenue.

Cera has increased its customer touch points by 8% in FY19 to 14,147. The plan is to increase this by 6-10% every year. About 72% of revenue typically comes from the retail segment and 28% from the institutional segment (including from government tenders). About 50% of sanitaryware, tiles and faucet revenues are from outsourced manufacturing.

Company guided capital expenditure of Rs 750mn for FY20, majority of which will go towards automation of faucet and sanitaryware business.

Rapid urbanisation, changing customer preference towards quality branded products particularly amongst the growing affluents, increasing nuclear families coupled with strong brand equity and recall and distribution network, augers well for the company. Cera stands-out among its peers given its comprehensive product portfolio, strong brand, wide distribution reach, healthy balance-sheet (zero debt) and strong return ratios (RoCE ~16.7%). Cera’s 70% retail skew has taken significant heavy-lifting and remains unmatched; this highlights the focus on profitable growth and execution.

Cera Sanitaryware (CMP Rs 2,960, Mcap Rs 39bn, NR)

Execution King


YE March (Rs mn) FY15 FY16 FY17 FY18 FY19P

Net Revenue 8,217 9,169 10,085 11,853 13,515

EBITDA 1,175 1,413 1,756 1,774 1,983

APAT 677 835 999 1,061 1,151

EPS (Rs) 52.0 64.2 76.8 81.5 88.5

P/E (x) 57.1 46.3 38.7 36.4 33.5

EV / EBITDA (x) 32.7 27.0 21.8 21.6 18.9

Core RoCE (%) 19.9 19.6 17.4 16.7

26


CORPORATE ATTENDEE: Arun Julasaria, Chief Financial Officer.

Key takeaways:

MDF division

CPIL’s MDF facility operated at 65% capacity utilisation in FY19. MDF EBITDA margins were lower as cost increase could not be passed on due to the supply glut in MDF. In FY20, management expects margin in this segment to remain stable, after which the company expects to be on the favorable side of the demand-supply dynamic. Overall, it expects to achieve 90% capacity utilisation by 2QFY20 and expects double-digit MDF revenue growth in FY20E. Given CPIL’s plant is close to optimum utilisation, the company is planning brown field capacity expansion to 1,000 CBM/day from 600 CBM/day currently with capex of Rs 1,500mn.

Plywood division

CPIL has 2,10,000 CBM standalone plywood capacity (2,40,000 CBM consolidated capacity). Current capacity utilization in plywood is 80-85%. Plywood EBITDA margins were lower in FY19 (-70bp; 1-at 13.6%) on account of higher sales contribution from the mid-segment Sainik brand. Company’s new strategy to focus on mid-end plywood segment with lower focus on profitability will continue to create margin pressure and thus management has guided for margin similar for FY19.

Particle Board

Particle Board has reached over 100% utilization and desired profitability margin (22% EBITDAM). The company has got license from the Uttar Pradesh government to set up a particle boards (500 CBM/day) plant in UP at a capital outlay of Rs 1,200 mn.

Logistics division

With two new players (All Cargo and CWC) entering Kolkata market, competition for CPIL has increased in the logistics division. Secondly, divergence of traffic from Kolkata to Haldia port has impacted the volume growth in logistics business.

CPIL’s margin contracted across segments as it shifted focus to market share gain. Management guided for margins in plywood, CFS and MDF businesses to remain at FY19 level; however, due to prices hikes, laminates segment’s margin is likely to increase.

The key challenges of slow demand environment, heavy competition and high input prices still persist in the industry, impacting growth prospects for the company. Moreover, EBITDA margins have come under pressure amid stiff competition in MDF and shift of focus on low-margin plywood products. Management believes CPIL’s long-term prospects look positive as demand/supply gap will narrow down with pricing power helping the players gain better margins on improving capacity utilization.

Century Plyboards (CMP Rs 173, Mcap Rs 38bn,NR)

Challenges persist


Net Revenue 15,884 16,409 18,187 20,239 22,804

EBITDA 2,559 2,895 3,120 3,311 3,016

APAT 1,498 1,698 1,935 1,661 1,489

EPS (Rs) 6.7 7.6 8.7 7.5 6.7

P/E (x) 25.7 22.6 19.9 23.1 25.8

EV / EBITDA (x) 16.7 14.6 13.9 13.2 14.3

Core RoCE (%) 24.0 20.5 15.1 13.3


27


HSIL (CMP Rs 259, MCap Rs 17bn, NR)

Demerger to unlock value

CORPORATE ATTENDEE: Ram Babu Kabra, President

Key takeaways:

HSIL has four distinct business segments, namely the Building Products Division, Consumer Products Division, Retail Division and Packaging Products Division.

The installed capacity for sanitaryware is 2mn pieces per annum ,faucets is ~2.5mn pieces per annum & pipes and fittings is 14,000TPA.

Building products segment (~50% of revenue): Sanitaryware/Faucets grew by ~5/9% in FY19, lower than company expectation because real estate did not pick up as expected, and company expects this situation to reverse in next 2 qtrs. Company guided 10% growth respectively in both these businesses for FY20. In the Pipes segment which got commissioned in Mar-18, revenues were at Rs1.5bn in FY19. Revenue from this segment is expected to reach to Rs3-3.5bn in next two years.

Packaging Segment (~35% of revenue): Installed capacity of 1,600 tonnes per day for glass containers across two plants. Utilization rate in packaging segment is at 85-90% against industry average utilization of 65-70%. Revenue growth guidance of 22-25% for glass container business for FY20.

Consumer Products Division (~11% of revenue): 50% of the turnover of this segment comes from Kitchen hood and top chimneys, and it is among the top 2-3 players in this segment. Water heater is the 2nd biggest revenue contributor for this segment, whereas water purifiers and coolers are other products.

Demerger of HSIL: Approval of NCLT has not yet been received and next hearing will be in first week of July. Post demerger, listing of the separate entity (Somany Home Innovations Ltd.) will take 45-60 days. Packaging segment and manufacturing of building products segment will be part of HSIL. Whereas, market facing segment of building products and consumer product business will be transferred to SHIL.

Completion of the ongoing demerger of HSIL will unlock value and help shareholders to choose between marketing and manufacturing companies. Considering the various initiatives taken by the government like smart cities, housing for all by 2022, Swachh Bharat Abhiyan and push towards providing sanitation, could create new demand avenues for the sanitaryware segment. Further, the company has entered into new segments like consumer, pipes and caps and closures which will drive further growth.


Net Revenue 19,806 19,787 20,748 22,528 27,124

EBITDA 3,325 3,153 2,867 2,718 3,160

APAT 854 1,085 1,003 806 702

EPS (Rs) 11.8 15.0 13.9 11.2 9.7

P/E (x) 21.8 17.2 18.6 23.1 26.6

EV / EBITDA (x) 7.9 7.7 8.7 10.4 9.3

Core RoCE (%) 5.7 5.3 4.5 3.9


28


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HDFC sec Cement & Building Materials Investor Forum Key ... Material... · Vicat Group is a 165...

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Transcript of HDFC sec Cement & Building Materials Investor Forum Key ... Material... · Vicat Group is a 165...