Ramco Cement's Q4FY19 results (Outperformer) - Realisations rebound; Cost pressures to decline
Q4FY19 result highlights
- Adj. PAT up 22.5% yoy to Rs1.69bn: on strong volumes and prices.
- Volume momentum strong with 20% yoy growth to 3.29mt: led by growth across South and East (~25% share). Demand remained strong on continued momentum in AP/Telangana, Tamil Nadu and Karnataka led by infra and housing projects.
- Realizations increased 1.4% yoy to Rs4634/t (+Rs242/t qoq): led by price hikes in South in Feb-19. We note there have been further price hikes in Apr-19 in both East and West, which is likely to drive realisations in 1QFY20.
- EBITDA/t at Rs985 (+Rs67/t qoq; -1.5% yoy): led by higher realisations and lower petcoke prices on qoq basis. Costs increased by 2.2% yoy to Rs3649/t led by higher P&F costs (+12% yoy, higher petcoke prices and restriction of petcoke usage in CPP driving down petcoke share). However, benefits of higher axle load and lower diesel prices restricted freight costs (-1.5% yoy, +3.3% qoq). Hence, cement EBITDA fell 5% yoy to Rs3.3bn.
- Wind Power seasonally lean quarter: EBITDA loss of Rs25mn on lower volumes and realisations (seasonally lean quarter). Overall EBITDA increased 19% yoy to Rs3.2bn.
- FY19 performance: Strong 17% yoy revenue growth led by 19% yoy volume growth (11.12mt) and 0.9% yoy increase in realisations. EBITDA/t fell 20% yoy to Rs873/t due to increased P&F and freight costs. EBITDA fell 5% yoy to Rs9.5bn, while PAT fell 6%yoy to Rs5.2bn
Key positives: Strong volume and realisation growth
Key negatives: Higher costs
Impact on financials: FY20/21E EPS +11.3%/9.8% to Rs34.1/40.7
Valuation and view
Ramco, a premium player in South India, has gained from strong demand and price hikes in South India in Feb-19. With further price hikes in Apr-19 the benefits are likely to accrue in FY20E. Ramco’s upcoming 3.75mtpa clinker and 4mtpa cement capacity in AP and East (2mtpa each) will continue to drive sustained volume growth momentum. Overall, Ramco continues to focus on maintaining its cost leadership position and sustained free cash flow generation (capex via internal accruals). The stock trades at 11.5x FY21E EV/EBITDA and at US$134 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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