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MOSL: THE RAMCO CEMENTS (Neutral)-Volume growth to be muted, price hike remains key

(TRCL IN, Mkt Cap USD2.3b, CMP INR698, TP INR745, 7% Upside, Neutral)

We met Mr S Vaithiyanathan, CFO of The Ramco Cements Limited (TRCL), for an update on the company’s business and growth plans. The company remains focused on growing its presence in core markets of south and east. Key takeaways:

Demand recovering, but volume growth to be muted at 5-6% in FY21
** Demand trends have been weak in south India over the past few quarters, particularly in Andhra Pradesh (due to the lack of new construction awards) where volumes are down by ~5% YoY. Tamil Nadu, however, has fared better. Demand in AP is likely to remain weak for another 6-9 months.

** Demand has picked up since Dec’19, but TRCL would likely see only 5-6% volume growth in FY21 due to constraints on clinker capacity. The company has guided for volume growth of 3-4% YoY in 9MFY21 and a pick-up thereafter from 4QFY21 once new clinker capacities start to commission.

** In the longer term, TRCL is likely to continue delivering higher volume growth than the market. It has recorded volume CAGR of 13% over FY16-20, as against 6% for the market.

** Premium products have been doing well with TRCL’s launch of Supercrete in May’19 being received well across markets. It is targeted to be used in the manufacture of high-performance concrete and sells at INR20-25/bag premium.

Prices weak in south and east
** Prices in TRCL’s operating markets of south and east have been muted in FY20, particularly with weak prices in AP impacting pricing in adjacent states.

** Prices in south have been trending down for the past 11 months and are lower by ~INR25/bag (7%) in FY20. Prices in TN are lowest in past five years.

** Prices in east have also been weak and are lower by ~INR30/bag (8%) in the past 10 months. They are however up 6% QoQ. Hikes undertaken by industry in east are not sustaining owing to significant capacity addition there – we expect this to continue as the region is set to see ~25% capacity expansion over the next two years.