Maintain ADD on The Ramco Cements - Industry-leading margin despite lower utilisation - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

The Ramco Cements (TRCL) reported a strong 3QFY21 performance. Standalone net sales/EBITDA/APAT grew 5/96/112% YoY to INR 13.4/4.0/2.0bn respectively. While weak demand in south pulled down sales volume by 8% YoY, unitary EBITDA doubled to industry-leading INR 1,508/MT on buoyant pricing in south, TRCL's large retail focus (90% of sales) and continued cost controls. We like TRCL for its large retail focus and superior cost controls that continue to support its industry-leading margin. Upcoming expansions should bolster volume growth FY22 onwards. We maintain our ADD rating with an unchanged target price of INR 908/share (12x its standalone Dec'22E EBITDA).

Key highlights - 3QFY21: Sales volume fell 8% YoY to 2.61 mn MT on continued weak demand and heavy monsoon in south and on retail focus of the company (90% trade). However, TRCL registered growth in the east. Cement utilisation fell to 54% vs 65% YoY. NSR fell 8% QoQ on slower sales growth QoQ in high-realisation south markets. Despite this, NSR stood 13% higher YoY. Unitary EBITDA doubled YoY to INR 1,508/MT (down-20% QoQ), riding on strong realisation gains YoY and 5% opex fall. TRCL continues to benefit from low-cost fuel inventory while freight costs went up on rising diesel price. Unitary fixed cost fell 8% YoY on strong fixed cost controls. TRCL's gross debt went up 16/6% YoY/QoQ to INR 31.1bn, owing to the ongoing capex. However, interest cost fell 26% YoY, on lower interest rate and interest cost capitalisation.

Capex updates and outlook: TRCL spent INR 4.8/11.7bn during 3Q/9MFY21, towards its ongoing Capex. Its 9MW WHRS in Jayanthipuram is expected to be operational in Feb'21. In 1QFY22, TRCL expects to commission the clinkering unit of 1.5mn MT along with 9MW WHRS in Jayanthipuram and 2.25 mn MT clinkering unit in Kurnool. Thereafter, its 1mn MT cement grinding, 12MW of WHRS, and 18MW of TPP in Kurnool are expected during FY22E. The pending Capex amount stands at INR 5.4 bn. We maintain our ADD rating with an unchanged target price of INR 908/share (12x its standalone Dec'22E EBITDA).

Shares of The Ramco Cements Limited was last trading in BSE at Rs.866.3 as compared to the previous close of Rs. 860.5. The total number of shares traded during the day was 38075 in over 1409 trades.

The stock hit an intraday high of Rs. 878.55 and intraday low of 854. The net turnover during the day was Rs. 33025833.

Source : Equity Bulls

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