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MOSL: THE RAMCO CEMENTS (Buy)-Weak realization and higher other expenses drag margins

​The Ramco Cements: Weak realization and higher other expenses drag margins

(TRCL IN, Mkt Cap USD2.5b, CMP INR688, TP INR823, 19% Upside, Buy)

• Healthy volume growth: TRCL’s volumes grew 10% YoY (+15% QoQ) to 2.28mt in 4QFY17 (est. of 2.21mt), driven by higher sales to the eastern markets and growth in the markets of AP/Telangana.
  
• Sharp decline in realizations: Cement realization fell 5% QoQ (-12% YoY) to INR4,450/tonne (est. of INR 4,573) due to weak pricing in its core markets of south India. Hence, net sales grew 6% YoY (+8% QoQ) to INR10.2b (est. of INR9.96b).
  
• EBITDA/t down sharply QoQ: Cement EBITDA/tonne declined ~20%/28% QoQ/YoY to INR1,076 (est. of INR1,222) due to lower realization and higher other expenses on account of marketing costs. TRCL margins of 23.9% (-8.4pp YoY, -4.8pp QoQ) came in lower than estimate of 26.5% due to weaker pricing and cost push. Hence, EBITDA fell 22% YoY to INR2.43b.
  
• Sharp decline in interest cost: Interest cost fell 55% YoY to INR201m in 4QFY17 due to debt reduction by INR6.9b in FY17. Tax rate was higher at 22% v/s 10% in the year-ago period. Hence, PAT of INR1.34b fell 26% YoY.
  
• FY17 performance: Volumes increased 16% YoY to 8.35mt, led by ramp-up of eastern unit and favorable base. Revenues grew by 10% YoY to INR39.3b and EBITDA by 10% YoY to INR11.6b. Interest cost declined 43% YoY to INR1.03b, resulting in 25% YoY increase in adj. PAT to INR6.5b.