India Ratings and Research (Ind-Ra) has assigned Prism Cement's (PCL) Rs 2 billion commercial paper (CP) programme an 'IND A1' rating. PCL will use the CP proceeds for its working capital requirements.

Ind-Ra has taken a consolidated view of PCL and its subsidiaries for the ratings. In FY14, the company’s cement division was stressed with EBITDA margins of 4.6% due to lower profits in the first three quarters. Consequently, consolidated EBITDA margins declined to 3.6% in FY14 from 6.3% in FY13, although revenue increased to Rs 50.4 billion from Rs 48.2 billion.

The performance of the company's tiles, bath and kitchen (TBK) division was under pressure in 9MFY15 with EBIT margins of negative 0.06% (9MFY14: negative 1.2%) as the company has to run the plant on high-cost fuel such as LPG and propane due to disturbance of fuel supply from GAIL (GAIL) due to pipeline maintenance. According to the management, pipeline supply from GAIL has restored from end-3QFY15 and margins are likely to improve from 4QFY15.

Central India (PCL's main market) is facing a demand-supply imbalance due to additional capacities by new entrants. However, this is likely to ease out over the medium term with no further major capacity additions planned in the central region. Despite the expected oversupply, operational improvements will enable PCL to earn a higher EBITDA per tonne.