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MOSL: THE RAMCO CEMENTS (Upgrade to Buy)-Optimistic on demand, but wary of near-term cost inflation

THE RAMCO CEMENTS: Optimistic on demand, but wary of near-term cost inflation

(TRCL IN, Mkt Cap USD3b, CMP INR944, TP INR1106, 17% Upside, Upgrade to Buy)

 

Upgrade to Buy on strong volume growth opportunities

• TRCL's 2QFY22 result reflects volume recovery in South India, post the slowdown seen during COVID-19 lockdowns. Volume improved by 27% QoQ and 23% YoY, which helped it to operate its clinker plants at 74% capacity.
• The company remains a play on the volume recovery theme and one of the better picks in the Cement space, led by its capacity expansion plans (clinker capacity increase of 38%) and Balance Sheet deleveraging (net debt/EBITDA expected to peak out at 2.1x in FY22E and should improve to 1x in FY24E).
• Recent price increase in its key markets should help to mitigate fuel cost increases. We raise our FY22E/FY23E/FY24E EPS estimate by 18%/16%/12% considering higher prices in South India and a lower tax rate (25.17% v/s 31% earlier). We upgrade our rating to Buy with a revised TP of INR1,106 (17% upside). 

Beats estimates on higher volumes (17% above our estimate)

• Standalone revenue /EBITDA/adjusted PAT stood at INR14.9b/INR3.9b/INR2.2b was 16%/18%/35% above our estimate (+19%/-11%/-9% YoY) led by a 17% volume beat at 2.71mt (+23% YoY).
• Blended realization stood at INR5,510/t (-3% YoY and -4% QoQ) v/s our estimate of INR5,552/t. Cement realization declined by 3% YoY to INR5,386/t (-5% QoQ) v/s our estimate of INR5,422/t. Blended EBITDA/t stood in line with our estimates, down 27% YoY to INR1,453/t (-15% QoQ).
• Cost/t grew 10% YoY (flat QoQ) to INR4,056/t (est. INR4,109/t) on account of power and freight cost inflation, which was partially offset by better fixed cost absorption.