MOSL: THE RAMCO CEMENT (Neutral)-Continues to gain market share, but pricing outlook weak
THE RAMCO CEMENT: Continues to gain market share, but pricing outlook weak
(TRCL IN, Mkt Cap USD2.6b, CMP INR776, TP INR750, 3% Downside, Neutral)
- Volume growth healthy; Weaker pricing impacting realizations: 2QFY20 volumes surprised positively (up 10% YoY to 2.72mt in a weak demand scenario), implying market share gains. Cement realizations, however, declined 5.6% QoQ to INR4,708/t (+1.8% YoY), due to weaker pricing in the southern and eastern regions of India. Thus, cement EBITDA/t also declined 20% QoQ to INR 977/t (+15%YoY). According to our estimates, we expect realization/EBITDA margins to be further pressurized in 3QFY20 as prices in the South/East are currently 2-6% below 2QFY20 average.
- EBITDA 11% above estimates: Revenue/ EBITDA/ PAT of INR13.1/ INR2.9/ INR1.7b, up 11%/ 19%/ 47% YoY, was driven by strong volumes (+10% YoY) and lower tax rate at 21% (v/s 32% last year) due to MAT credit availed.
- Debt up sharply on low cash conversion and high capex: Net debt has risen sharply by 55% from Mar'19 to INR22.2b in Sep'19 (implying 1.9x net debt/ EBITDA) due to low cash conversion rate (CCR) of 0.4x and higher capex spend. CCR (Operating cash flow/ EBITDA) was low due to higher working capital. While operating cash flow for 1HFY20 stood at INR1.5b, free cash flow was negative at INR6.8b due to high INR8.3b capex spends in 1HFY20 for new capacities being set up.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
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