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MOSL: THE RAMCO CEMENTS (Buy)-In-line result-capacity expansion to drive growth

​The Ramco Cements: In-line result; capacity expansion to drive growth

(TRCL IN, Mkt Cap USD2.4b, CMP INR689, TP INR806, 17% Upside, Buy)

• East continues to gain momentum: TRCL's volumes grew 4% YoY (-6% QoQ) to 2.15mt (est. of 2.16mt) in 1QFY18, driven by increased sales to the east markets. Volumes for the southern operations declined due to weak demand in Tamil Nadu on account of sand shortage.
• Sequential growth in realization: Cement realization increased 4% QoQ (+1% YoY) to INR4,607/tonne (est. of INR4,600) due to pricing improvement in both the south and east markets. Net sales grew 5% YoY (flat QoQ) to INR10.16b (est. of INR10.12b).
• EBITDA/t below expectations due to cost push: Blended EBITDA/tonne stood at INR1,293 (-11% YoY, +21% QoQ). Windmill EBITDA came in higher than expected at INR219.1m due to improved evacuation by Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO). Cement EBITDA/tonne stood at INR1,192 (-16% YoY, +11% QoQ; est. of INR1,221). TRCL margins stood at 27.4% (-3.5pp YoY, +3.5pp QoQ) v/s estimate of 26.7% due to increase in P&F cost on account of liquidation of low-cost petcoke inventory. Employee cost increased due to pay revision.
• Management commentary: 1) Total capacity addition of 3.1mt in east at capex of INR10.95b (EV of USD54/t), with likely commissioning in 18 months from the date of obtaining necessary statutory clearances. 2) Gross debt at INR14b (flat QoQ). 3) Capex at INR1.2b for 1QFY18.