MOSL: THE RAMCO CEMENTS (Buy)- Higher realization drives profitability

​The Ramco Cements:Higher realization drives profitability

(TRCL IN, Mkt Cap USD2.5b, CMP INR720, TP INR853, 19% Upside, Buy)

• Volume growth driven by east: TRCL’s volumes grew 6% YoY (flat QoQ) to 2.15mt in 2QFY18, driven by higher sales to east markets with the ramp-up of the Vizag unit. Volumes for south operations were impacted by weak demand from TN, partially offset by higher demand from AP/Telangana.
  
• Realization improvement led by favorable mix: Cement realization rose 4% QoQ to INR4,783/tonne (est. of INR4,507) due to a favorable market mix (tilted toward higher sales to south). Net sales grew 5% YoY (+5% QoQ) to INR10.6b (est. of INR 9.9b). Wind power revenue declined 20% YoY to INR340m for 2QFY18.
  
• Margins stable despite cost push: Margin remained flat QoQ at 27.3%, as cost push was mitigated by realization improvement due to a favorable market mix. Windmill EBITDA stood at INR294m (-25% YoY) due to a decline in revenues. Cement EBITDA/tonne stood at INR1,215 (-21% YoY, +2%QoQ) (est. of INR 1018), led by higher-than-estimated realizations.
  
• Management commentary: 1) Power and fuel cost/t increased sharply by 35% due to liquidation of low-cost inventory. 2) Freight cost increased 5% QoQ due to higher diesel price. 3) Gross debt of INR15b largely stable QoQ. 4) Interest cost declined 39% YoY due to a reduction in gross debt.