Maintain ADD on Ramco Cements - Strong beat - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

The Ramco Cements (TRCL) reported a landmark 2QFY21 performance. While standalone net sales fell 5% YoY to Rs 12.57bn on lower volumes, solid pricing in the south, brand premiumisation and proficient cost controls buoyed standalone EBITDA/APAT by 50/40% YoY to Rs 4.42/2.36bn respectively. Its 1HFY21 OCF soared >5x on solid profit rise and working capital release. Ongoing expansions should accelerate its volume growth FY22E-onwards. We also expect its stellar margin to sustain on brand premiumisation and rising cost controls. We maintain ADD with a revised target price of Rs 871/share (12x its Sep'22E standalone EBITDA).

Results highlights: Poor demand in south despite growth in east markets pulled down volumes by 11% YoY. TRCL noted that its increased focus on trade sales (>80% vs 75% YoY) and brand premiumisation (high double-digit vs 5% YoY) drove up NSR 5% QoQ. Further, strong pricing in south bolstered NSR at +18% YoY. Opex fell 2% YoY on lower fuel costs and strong cost controls. Thus, unitary EBITDA soared to industry best - Rs 1,892/MT (+91% YoY) in 2QFY21. TRCL's 1HFY21 OCF soared >5x YoY to Rs 7.94bn on robust profits and lower working capital. Of this, it spent Rs 6.9bn on Capex while net debt fell ~Rs 0.6bn vs Mar'20 to Rs 28.4bn currently.

Capex updates and outlook: TRCL commissioned its Odisha SGU in Sep-20. It will further add 3.75mn MT clinker capacities and 1 mn MT SGU in AP by Mar'21E and in FY22E respectively. These expansions should accelerate its volume growth FY22E-onwards. We also expect its stellar margin to sustain on brand premiumisation and rising cost controls (WHRS additions). We raise our EBITDA estimates for FY21/22/23E by 11/6/12% respectively to factor in strong realisation trend. We maintain our ADD rating with a revised target price of Rs 871/share (12x its standalone Sep'22E EBITDA).

Shares of The Ramco Cements Limited was last trading in BSE at Rs.835.15 as compared to the previous close of Rs. 827.9. The total number of shares traded during the day was 24611 in over 1445 trades.

The stock hit an intraday high of Rs. 840 and intraday low of 821.9. The net turnover during the day was Rs. 20427314.

Source : Equity Bulls

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