Ramco Cement's Q3FY19 results (Outperformer) - Strong volumes, but realisations weak
Q3FY19 result highlights
- Adj. PAT fell 8.4% yoy to Rs1.01bn: on weak realisations.
- Volume momentum strong with 21% yoy growth to 2.75mt: led by growth across South and East (~25% share; ~15% growth). Demand remained strong on continued momentum in AP/Telangana, Tamil Nadu and Karnataka led by infra and housing projects. However, demand in Kerala was weak during the quarter.
- Realizations fell 4.7% yoy to Rs4392/t (-Rs230/t qoq): led by lack of discipline among players. Moreover, adverse volume mix and higher non-trade sales further impacted realisations in the quarter.
- Positive operating leverage contain costs on qoq basis: EBITDA/t fell 21% yoy to Rs784 (-Rs67/t qoq) on lower realisations and higher costs (+5.6% yoy to Rs3,627/t). Costs were up largely on higher P&F (31.5% yoy) and freight (+2% yoy) led by higher fuel prices and use of high cost inventory. However, costs fell 4.4% qoq led by positive operating leverage and lower freight costs (-Rs80/t qoq; lower diesel prices, axle load benefits). We note the benefit of lower petcoke prices are likely to be reflected in 4QFY19. Hence, cement EBITDA fell 5% yoy to Rs2.15bn.
- Wind Power reports EBITDA loss: of Rs44mn on lower realisations (seasonally lean quarter). Overall, EBITDA fell 7% yoy to Rs2.1bn.
Key positives: Strong volume growth, cost efficiencies on qoq basis
Key negatives: Weak realisations
Impact on financials: FY19/20E EPS cut by 10%/8% each to Rs20/27
Valuation and view
Ramco, a premium player in South India, has gained market share and undertaken cost efficiency initiatives, which has helped offset the weak pricing environment in South. We believe the trend is likely to continue as it penetrates deeper into the East via its 2mtpa capacity expansion in W. Bengal and Odisha. Moreover, Ramco is expanding its capacity in South in FY21E in AP by 3mtpa which will continue to drive volume growth momentum. Overall, Ramco continues to focus on maintaining its cost leadership position and sustained free cash flow generation. The stock trades at 12.5x FY20E EV/EBITDA and at US$105 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.
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