Ramco Cement's Q1FY20 results (Outperformer) - Sharp improvement in realisations
Q1FY20 result highlights
- Adj. PAT up 53.6% yoy to Rs1.92bn: on strong increase in realisations.
- Volumes were muted: to 2.7mt (+3.4% yoy) largely driven by growth in South while East was weak on elections, heavy rains, etc. South demand remained strong across states except AP/Telangana (slow construction activity on change in government).
- Realizations jump 10% yoy...: to Rs4989/t (+Rs355/t qoq) led by price hikes in South in Feb-19 and Apr-19. Concurrently, east too saw an increase of Rs30-35/bag in Apr-19. However, prices have corrected Rs10-15/bag in AP/Telangana and East on weak demand momentum.
- … driving 44% yoy growth in EBITDA/t: to Rs1217 (+Rs232/t qoq) led by higher realisations. However, costs increased 2% yoy to Rs3791/t; +125/t qoq. Higher costs were led by negative operating leverage and Rs190mn one time expense leading to higher employee & other costs. On the other hand, P&F costs (+0.4% yoy to Rs984/t) is yet to reflect the decline in petcoke prices (likely over the next 2-3 quarters) as usage fell to 42% (62% in 1Q19) and use of high cost petcoke inventory. Further, freight costs fell 7.4% yoy to Rs1040/t (lower leads, high base). Hence, cement EBITDA +50% yoy to Rs3.24bn.
- Wind Power EBITDA +14% yoy to Rs162mn: on higher volumes (+16%). Hence, overall EBITDA increased 49.7% yoy to Rs3.24bn.
Key positives: Strong realisation growth
Key negatives: Higher costs
Impact on financials: FY20/21E EPS cut by 1.8%/1.5% to Rs33.5/40.1
Valuation and view
Ramco, a premium player in South India, has gained from strong price hikes in the quarter. While the sustained demand weakness and lean season is driving partial correction in prices (Rs10-15/bag), we believe demand will see gradual improvement led by uptick in govt projects and thereby prices. On the other hand, Ramco continues to grow ahead of market led by its focus on sustaining cost leadership. Upcoming capacity expansions of 3.75mtpa clinker and 4mtpa cement capacity in AP and East (2mtpa each) will drive sustained volume 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 11.4x FY21E EV/EBITDA and at US$127 on EV/t basis. Maintain Outperformer.
Ramco Systems is engaged in software development. Co.'s three operating segments are product software and related services; other software services; and network solutions. Product software and related services is engaged in the development, licensing, implementation and maintenance of software solutions. In the other software services, Co. is engaged in providing professional services and implementing projects. Co. is engaged in the development and sale of network and communication hardware, security software and other related services in the network solutions segments
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