Prism Cement recently received approval from the relevant authorities for the merger of two of its unlisted group companies, H&R Johnson (India) and RMC Readymix (India) with itself.
The all-stock deal will transform the largely central-India focused cement company into an integrated building-material supplier with a major presence in tiles and sanitary ware and ready-mix concrete. H&R Johnson is the country’s largest manufacturer and marketer of tiles and sanitary-ware, while RMC is the country’s third largest manufacturer of ready-mix concrete.
However, the poor profitability of the tile and RMC business vis-à-vis the cement business remains a cause for concern. For instance, in its core cement business, its EBITDA margins were a robust 34.8% on net sales of INR732.36 crore during the first nine months of FY10.
However, in its RMC business, during the nine-months ended December 2009, RMC’s EBITDA margins were just 5.7% on an income of INR487.75 crore. In the case of the tiles division too, its EBITDA margins were nearly 11.3% during the first nine months on gross sales of INR820.6 crore.
The company justified the amalgamation of the two group companies by pointing out that the margin cycle for RMC’s business is exactly the opposite of the cement business, and thus it provides a hedge to the cyclical nature of the cement division.