ADD on Ramco Cements - Healthy margin cushions volume loss impact - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

The Ramco Cements Ltd (TRCL) reported standalone revenue/EBITDA/APAT decline of 25/28/43% YoY to Rs 10.42/2.60/1.10bn, mostly driven by the 28% YoY volume fall in 1QFY21. Amid weak demand, robust price recovery in the south, benign fuel cost, and strong discretionary cost control buoyed the margin, thus moderating the earning impact. Continued demand recovery and upcoming expansions in the southern/eastern markets should drive 7% volume CAGR during FY20-23E. We also expect its healthy margin to sustain through FY23E. We maintain estimates, target price of Rs 713/sh, and our ADD rating on the stock.

1QFY21-strong margin sustained YoY: Demand weakness in the south amid COVID lockdown, drove 28/34% YoY/QoQ volume fall. However, the sharp price recovery in the southern market (NSR up 12/5% QoQ/YoY) moderated the impact. Operating expenses inflated 6/6% YoY/QoQ, pushed by negative operating leverage, higher raw material cost (one-off clinker purchase in 1Q) and higher CSR spend. Benign fuel cost and strong restraint in discretionary expenses slowed the cost inflation. Subsequently, unitary EBITDA remained buoyant at Rs 1,285/MT (+1/35% YoY/QoQ). Hence, EBITDA fell in line with sales loss. Capital charges rose YoY on account of 2mn MT GU additions in 2HFY20, leading to APAT declining at a higher rate as against the EBITDA fall. During 1Q, TRCL spent Rs 2.6 bn on ongoing expansions and repaid Rs 1.8 bn of debt.

Capex update and outlook: By Sep'20, TRCL will commission 1mn MT GU in Odisha. By Mar'21, it expects to commission clinker units in Jayantipuram (1.5mn MT) and Kurnool (2.25mn MT). The 1mn MT GU at Kurnool (along with 18MW CPP, 12MW WHRS and railway siding) is delayed into FY22E (owing to COVID). 27MW WHRS at Jayantipuram will also become operational during FY21E. We maintain our estimates and target price for TRCL. Improving demand in the south should moderate TRCL's FY21E volume decline to 14%, and upcoming expansions should lead to 20% volume CAGR in FY21-23E, in our view. We also model in unitary EBITDA to remain stable at ~Rs 1,180/MT. Our target price of Rs 713/sh is based on 12x Jun'22E EBITDA. We maintain our ADD rating on the stock.

Shares of The Ramco Cements Limited was last trading in BSE at Rs.671.55 as compared to the previous close of Rs. 678.45. The total number of shares traded during the day was 19843 in over 1133 trades.

The stock hit an intraday high of Rs. 709.8 and intraday low of 667.05. The net turnover during the day was Rs. 13362677.

Source : Equity Bulls

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