MOSL: THE RAMCO CEMENTS (Buy) - Healthy volume growth-margins impacted by lower realization
The Ramco Cements: Healthy volume growth; margins impacted by lower realization
(TRCL IN, Mkt Cap USD2.6b, CMP INR732, TP INR847, 16% Upside, Buy)
- Volume growth led by eastern market: TRCL’s volumes grew 15% YoY to 2.27mt (est. of 2.25mt) in 3QFY18, driven by growth in the eastern markets. Cement realizations stood at INR4,606/ton (-1.9% YoY, -3.7% QoQ) v/s est. of INR4,833/ton, likely due to higher proportion of sales in the lower-priced eastern market. Revenue of INR10.5b (+12% YoY) came in lower than our estimate of INR11b due to below-expected realizations.
- Margins shrink QoQ due to unfavorable revenue mix: Blended EBITDA/t declined 26% YoY/QoQ to INR1,001 (est. of INR1,264) due to cost push and lower realizations. Cost/t increased 8% YoY (1% QoQ) to INR3,631 (in-line) due to an increase in P&F cost/t (+16% YoY; higher petcoke prices) and freight cost/t (+11% YoY; increase in diesel prices). Hence, EBITDA stood at INR2.28b (-15% YoY) v/s our estimate of INR2.84b. Interest cost fell 39% YoY to INR160m due to debt reduction. Tax rate was lower at 23% v/s 27% in 3QFY17, restricting the decline in adj. PAT to 26% YoY (to INR1.1b).
- Management commentary: 1) Freight cost/t increased sharply by 11% YoY due to higher lead distances and an increase in diesel price. 2) It intends to incur capex of INR3.2b in FY18. 3) The upcoming grinding units in Odisha and West Bengal should get commissioned by 1HFY20.
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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