Ramco Cements - All-time high EBITDA/te on lower volumes - ICICI Securities

The Ramco Cements' (TRCL) Q2FY21 EBITDA jumped sharply 49% YoY to Rs4.4bn, significantly higher than our/ consensus estimates owing to sharp improvement in realisation. Realisation surprised positively with 4% QoQ/ 17% YoY increase owing to better market mix and higher sales of premium products. Volume decline was higher at 19% YoY owing to Covid-19 lockdown and heavy rains in its key markets; while cement cost/te declined 2% YoY. Accordingly, cement EBITDA/te rose 90% YoY to all-time high of Rs1,892/te (I-Sec: Rs1,306/te). TRCL capacity additions by 40% would drive market share gains and provide enough levers to contain cost escalations, in our view. Factoring-in higher realisation, we raise our FY21E EBITDA by 8%. With improving profitability and growth visibility, we raise our target EV/E multiple to 13x (earlier 12x) and increase our target price to Rs960/sh (earlier: Rs780) based on 13x Sep'22E EV/E on half yearly rollover. Maintain BUY.

- Revenue declined 5% YoY to Rs12.5bn: Realisation sharply increased 17% YoY / 4% QoQ to Rs5,498/te owing to better market mix and increasing sales of premium products. Volumes decline was higher at 19% YoY to 2.21mnte despite growth in East markets owing to Covid-19 lockdown and heavy rains in Kerala, Karnataka, AP and Telangana in Aug-Sep'20. Management expects demand to improve in coming quarters with gradual lockdown relaxation and return of migrant workers.

- Cement EBITDA/te increased 90% YoY to industry leading and all-time high at Rs1,892/te (I-Sec: Rs1,306/te). Cost/te declined 2% YoY vs our estimate of 1% YoY increase. Raw material plus power & fuel cost/te declined 10% YoY/ 11% QoQ owing to usage of low cost fuel inventory and improved blending ratio. Freight cost/te declined 1% YoY/ 6% QoQ; while other expenses/te (including employees cost) increased 12% YoY owing to poor operating leverage. Blended EBITDA/te (including windmill) increased 84% YoY to Rs1,997/te (I-Sec: Rs1,402/te).

- TRCL incurred capex of ~Rs24bn (out of planned Rs33bn) till Sep'20-end. EBITDA to OCF conversion stood strong at 110% in H1FY21 (vs 22% in H1FY20). TRCL has generated FCF of Rs750mn post capex spend of Rs6.9bn and working capital release of Rs1.2bn in H1FY21. Railway siding at Kolaghat and 1mnte grinding unit (GU) got commissioned in Sep'20 along with railway siding in Odisha in Oct'20. 9MW WHRS unit in Jayanthipuram got commissioned in Sep'20, additional 9MW is expected by Dec'20 and another 9MW WHRS along with 1.5mnte clinker unit and 2.25mnte clinker unit in Kurnool are likely to go on stream before Mar'21. 1mnte GU, 12 MW of WHRS and railway siding in Kurnool are to be commissioned in FY22.

- Enough levers to contain cost escalations: New GUs are likely to provide logistics cost advantage of Rs200-300/te (Rs40-50/te at company level) while commissioning of WHRS would help reduce power costs. We expect TRCL's cement EBITDA/te to increase from Rs991/te in FY20 (Rs1,588/te in H1FY21) to Rs1,344/te by FY23E.

Shares of The Ramco Cements Limited was last trading in BSE at Rs.801.95 as compared to the previous close of Rs. 796.35. The total number of shares traded during the day was 8852 in over 476 trades.

The stock hit an intraday high of Rs. 805 and intraday low of 790.95. The net turnover during the day was Rs. 7075936.

Source : Equity Bulls

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