The second quarter of fiscal 2017 was a dismal one for Prism Cements. No wonder the stock has lost 5.7% in the last seven trading sessions. Stand-alone loss narrowed to Rs21.27 crore from Rs33.26 crore year-on-year (y-o-y), aided by a rise in other income and a decrease in finance cost. However, revenue declined 9.5% y-o-y to Rs1,259.94 crore, missing the Bloomberg consensus estimate of Rs1,309.4 crore.
Overall Ebitda declined 6.4% to Rs32.3 crore although operating margin saw an improvement because of lower raw material and power and fuel costs. Ebitda stands for earnings before interest, taxes, depreciation and amortization.
Segment wise, cement volumes slipped 12.6% to 1.18 million tonnes (mt) mainly impacted by a heavy monsoon in key markets where the firm sells cement and weak construction activity led by the sand mining ban in Uttar Pradesh. Prism Cement’s operations are focused on central India.
The performance of the company’s tile, bath, kitchen (TBK) segment continues to be sluggish. Although the firm is taking steps to optimize costs and strengthen product positioning, whether or not these measures would benefit is yet to be seen. In the interim, these initiatives are adding to cost. Thus, profitability here remains a cause of concern.
Similarly, the performance of the ready-mix concrete (RMC) segment is marred by lower revenue and higher operating costs. Both TBK and RMC are bleeding, and a turnaround is not foreseen anytime soon.
Meanwhile, the firm will raise Rs200 crore via issuance of non-convertible debentures (NCDs) on a private placement basis.
According to Motilal Oswal Securities Ltd, Prism Cement is poised to benefit from demand recovery in central India and could see a strong improvement in profitability driven by higher consolidation in the region over the past 12-18 months.
However, just like some other brokerage houses, it is concerned about the performance of the firm’s TBK business segment.
All in all, it has been a poor show from Prism Cements. Also, the extent to which the volumes of many cement firms have been hit in the past one month due to the ongoing cash crunch has weighed on investors’ sentiment towards this sector, which was anticipating a demand revival from Q3FY17.
How soon cement consumption will pick up post demonetization is anybody’s guess. Though the stock ended Thursday’s session up 0.73% at Rs82.60, a sharp recovery in the share price is unlikely anytime soon.