Ramco Cement's Q2FY19 results (Outperformer) - Strong volumes; cost pressures pain
Q2FY19 result highlights
- Adj. PAT at Rs1.21bn (-25% yoy): as sharp rise in costs (notably P&F and freight) offset strong volume growth.
- Volumes growth strong at 15% yoy to 2.47mt: led by growth across South and East (25% share) markets. Demand remained strong on continued momentum in AP/Telangana, pick up in Tamil Nadu as also steady growth in Karnataka. However, demand in Kerala was weak during the quarter led by floods.
- Realizations fell 3.4% yoy to Rs4,622 (+Rs85 qoq): Qoq increase was due to price hikes in South on back of strong demand. The improvement in realizations is despite poorer geographical mix (lower volumes in Kerala, which typically has higher realisations).
- Cost escalations impact cement EBITDA: EBITDA/t at Rs851, fell 30% yoy (+Rs6/t qoq) due to higher costs (+6% yoy; +2% qoq). Cost hike was largely due to higher P&F (+19% yoy; higher petcoke prices) and freight (+12% yoy; +23% yoy hike in diesel prices). However we note, cost increase was restricted on qoq basis as both P&F and freight fell 2.5% qoq on usage of cheaper imported coal (petcoke consumption fallen to 60%) and lower freight costs (lower leads). Hence, cement EBITDA fell 20% yoy to Rs2.1bn.
- Strong wind Power EBITDA: +16% yoy to Rs342mn on higher realisations (volumes fell 2% yoy). Hence, overall EBITDA fell 20% yoy to Rs2.05bn.
Key positives: Strong volume growth, cost efficiencies on qoq basis
Key negatives: cost pressures, weak realistions
Impact on financials: FY19/20E EPS cut by 4% each to Rs24/32
Valuation and view
Ramco, a premium player in South India, has gained market share and undertaken cost efficiency initiatives, which has led to sharp earnings growth momentum over the past few years. While there are near term headwinds in form of high earnings base and higher fuel prices (likely to restrict near term earnings growth), we believe long term growth drivers are in place led by demand revival in the South, particularly in AP and Telangana as also deeper penetration into the East. Ramco continues to focus on maintaining its cost leadership position and sustained free cash flow generation. Stock trades at 11.6x FY20E EV/EBITDA and at US$104 on EV/t basis. Maintain Outperformer.
Ramco Cements is engaged in the manufacture and production of cement, ready mix concrete and dry mortar products in India. Co. operates in three divisions: Cement; Drymix Products and Ramco Concete. In the Cement Division, Co.'s main product is Portland Cement, which is manufactured in eight production facilities that include integrated cement plants and grinding units. Co.'s Dry Mix Division manufactures pre mixed dry mortars such as plasters, wall putty and tile adhesive. Co.'s Ramco Concrete Division manufactures concrete based on customers requirements such as permutations based on concrete grades, workability and site conditions. Co. also operates a wind farm in India.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.