MOSL: THE RAMCO CEMENTS (Neutral)-Disappoints on weaker realizations and higher costs
The Ramco Cements: Disappoints on weaker realizations and higher costs
(TRCL IN, Mkt Cap USD2.7b, CMP INR812, TP INR770, 5% Downside, Neutral)
Pricing pressure in East/South impacts margins; capacities delayed
- The Ramco Cement's (TRCL) 3QFY20 results were disappointing on both pricing and costs. Cement EBITDA was down 6% YoY as (a) margin per ton declined 9% YoY (-27% QoQ) to INR714/t due to pricing pressure in the South/East, and (b) higher costs on additional freight/promotional expenses.
- We cut our FY20/FY21 EPS estimates by 7%/ 6% due to expectations of sustained higher promotion spends to push volumes. Commissioning timelines of ongoing expansions has also been pushed ahead by 3 months, reducing the near-term volume outlook. We maintain Neutral.
Miss led by weaker realizations and higher costs
- EBITDA at INR1.9b (-5% YoY, -32% QoQ) was 21% below est. INR2.5b, implying EBITDA/t of INR714/t (-9% YoY, -27% QoQ) 19% below est. INR885.
- Cement realization declined 5% QoQ to INR4,475/t (+2% YoY, est. INR4,528/t) due to weak pricing in both the South/ East.
- Cost/t at INR3,780/t (+4%YoY, +1% QoQ) also came in 3% higher than our est. INR3,660/t due to higher freight costs (as clinker was supplied to the new grinding unit started in the East) and higher promotion spends.
- Revenue at INR12.7b (+6% YoY, -3% QoQ) was also 3% below est. due to weaker-than-expected volumes at 2.84mt (+3.5% YoY, est. 2.91mt).
- Wind Power segment made an EBITDA loss of INR35m (v/s loss of INR44m in 3QFY19) due to lower generation seasonally.
- Overall EBITDA margin stood at 15.6% (-1.8pp YoY; -6.6pp QoQ).
- PAT at INR948m (-6% YoY, -44% QoQ) was 22% below est. INR1.2b
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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