August 3, 2018 ICICI Securities Ltd | Retail Equity Research Result Update Cost pressure drags margins, profitability… Ramco reported mixed Q1FY19 results. Revenues increased 18.6% YoY to | 1219.9 crore (vs. I-direct estimate: | 1178.9 crore) led by 21.4% YoY increase in volumes to 2.6 MT (vs. I-direct estimate: 2.5 MT) due to higher sales in the eastern region while realisations remained weak, down 2.3% YoY to | 4674/t (vs. I-direct estimate: of | 4,667) EBITDA/t declined 29% YoY to | 959/t (vs. I-direct estimate: | 1,033/t) mainly led by weak realisations (down 2.3% YoY) and 52.4% YoY increase in the power cost In terms of expansion plans, Ramco will add 1.5 MT clinker capacity at Andhra Pradesh for | 680 crore. This expansion is in addition to 3 MT capacity expansion announced by the company previously Key beneficiary of increased infra spends in its key operating markets… The pick-up in road tendering activity, improved sand availability in the companys operating markets and healthy demand from the government’s low cost housing programme are expected to be key drivers of cement demand. As a result, we expect demand (15 MT) to outpace supply (7 MT) positively impacting utilisation levels. Hence, we expect Ramco’s operating markets to post 7-8% growth annually in the next three to four years. Capacity expansion to further drive growth… Over the years, the company has penetrated the West Bengal and Odisha market. Ramco is planning to further penetrate in the east through capacity expansion. Of the 4.5 MT capacity expansion planned by the company, 2 MT will be in the east (1 MT each in West Bengal, Odisha) while 2.5 MT will be set up in the south (in Andhra Pradesh). The capacity expansion in the east will enable the company to remove capacity constraint and also increase its market share. Apart from expansion in the east, the capacity expansion in AP (south) will enable it to tap the growing opportunity of this market (that is expected to grow at 14% CAGR in the next two to three years). Healthy cash flow generation to keep balance sheet light! During the downturn in south in FY10-15, efficient cash flow management has enabled the company to reduce debt-equity from 1.6x to 1.0x in FY15 and further to 0.3x in FY18. Going forward, we believe Ramco’s robust cash flow generation (~| 2,500 crore in FY18-20E) will not only enable it to fund its capex through internal accruals but also maintain its debt-equity at 0.3x. Cost pressure to stabilise, demand to improve further; maintain BUY Better sand availability in Tamil Nadu, one of the key markets of Ramco Cement (~60% of capacity share), is expected to be a key contributor to volume growth in coming years. This, coupled with higher penetration in the eastern markets, will provide tailwinds to overall volume growth. Apart from higher penetration in the east, we expect the southern region to witness an upturn mainly led by higher government spending on low cost housing, irrigation and other infra projects. This, coupled with capacity expansion, we expect revenues to grow at a CAGR of 14.9% in FY18-20E. In addition, we expect the EBITDA margin to improve from H2FY19 onwards mainly led by stabilisation of power costs and improvement in freight costs. Considering the capacity expansion, better leverage (D/E: 0.3x) and cost efficiency, Ramco is currently trading at attractive valuations post recent correction. Hence, we maintain our BUY rating on the stock and an SOTP based target price of | 845 (i.e. 13x FY20E EV/EBITDA). Ramco Cements (RAMCEM) | 676 Rating matrix Rating : Buy Target : | 845 Target Period : 9-12 months Potential Upside : 25% What’s changed? Target Price EPS FY19E EPS FY20E Rating Changed from | 930 to | 844 Changed from | 29.1 to | 28.1 Unchanged Changed from | 35.0 to | 34.8 Quarterly performance Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%) Revenue 1,219.9 1,028.8 18.6 1,254.8 -2.8 EBITDA 250.3 290.4 -13.8 272.2 -8.0 EBITDA (%) 20.5 28.2 -771 bps 21.7 -117 bps PAT 125.0 155.8 -19.8 108.6 15.1 Key financials FY17 FY18 FY19E FY20E Net Sales 3949.5 4406.4 5058.9 5821.8 EBITDA 1176.4 1099.4 1266.1 1586.7 Net Profit 649.3 555.7 662.4 819.0 EPS (|) 27.3 23.5 28.1 34.8 Valuation summary (x) FY17 FY18 FY19E FY20E P/E 25.4 29.5 24.6 19.9 Target P/E 30.9 35.9 30.0 24.3 EV/EBITDA 15.1 15.9 14.0 11.1 EV/Tonne (US$) 179.7 176.5 168.8 140.1 P/BV 4.4 4.1 3.6 3.2 RoNW (%) 17.4 13.7 14.7 16.1 RoCE (%) 12.7 10.4 10.7 12.2 Stock data Particulars Amount (| crore) Market Capitalisation 16498.7 Total Debt (FY18) 1113.2 Cash (FY18) 146.8 EV 17465.1 52 week H/L (|) 879/649 Equity Capital 23.6 Face Value (|) 1.0 Price performance 1M 3M 6M 12M ACC -12.7 -16.7 -22.0 -17.7 UltraTech Cement -3.3 -7.4 -9.6 -11.1 Ramco Cement 1.9 16.3 15.9 20.4 Research Analyst Rashesh Shah [email protected]Devang Bhatt [email protected]
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Ramco Cements (RAMCEM) | 676 · stabilisation of power costs and improvement in freight costs. Considering the capacity expansion, better leverage (D/E: 0.3x) and cost efficiency,
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instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
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loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
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