All round performance
We retain BUY rating with TP of Rs 880 (13x Sep’21E EBITDA). Our TP implies EV/MT of USD 179/MT.
HIGHLIGHTS OF THE QUARTER
* In 2QFY20, Ramco Cements’ (TRCL) strong earnings traction continued as its standalone revenue/EBITDA/ PAT rose 11/19/47% YoY to Rs 13.17/2.95/1.68bn resp.
* Volume momentum regained, stable pricing YoY: With a 10% vol growth in 2Q, TRCL regained its double digit vol momentum (10%+ growth in 7 out of 8 previous qtrs), after a subdued 1Q (+3% YoY). The management suggested it could grow at similar pace across both the south and the east markets. NSR remained positive (+2% YoY) despite 6% QoQ roll back.
* Firm margin on healthy realisation and cost cool off: Falling fuel prices and strong logistics cost control aided 1% YoY unitary opex reduction. Input cost fell 3% QoQ, from benefits of lower petcoke prices. Unitary EBITDA rebounded 14% YoY to Rs 986/MT (though it fell ~Rs300/MT QoQ on price decline). Management expects further cost reduction in 2H, owing to continued slide in fuel prices.
* 1HFY20 performance: Aided by 6% YoY NSR recovery vol grew 7%, amid benign opex (+1% YoY). 1HFY20 net sales/EBITDA/PAT grew 12/46/50% YoY. In this period, TRCL generated ~Rs 5bn of cash PAT and borrowings grew ~Rs 8bn. Of these, ~Rs 8bn went towards capex, ~Rs 4bn towards increased working capital requirement and ~Rs 1bn towards dividend payouts
* Capacity set to increase by 27% to 19mn MT in FY21E: TRCL commissioned its 1mn MT GU in West Bengal (in 2QFY20). Its other expansions across east and south will lead to cement/clinker capacity of 19/13mn MT at end of FY21 (vs 15/9.4mn MT at end FY19). These expansions will enhance TRCL’s sales capability across the eastern and southern regions and also lower operating cost for the eastern sales. With healthy internal accruals, net D/E should remain below 0.5x
* Near term outlook: We expect TRCL to deliver 11/20/24% sales vol/EBITDA/PAT CAGR over FY19-22E, led by cement price recovery, moderating cost pressure and demand recovery 2HFY20 onwards.
We like TRCL for its strong distribution (continued volume momentum), robust profitability metrics and prudent balance sheet. Thus, we continue to ascribe it premium valuations. We maintain BUY with a TP of Rs 880 (13x Sep’21E EBITDA, implying EV USD 179/MT. It currently trades at 12.6/10.9x FY21/22E EBITDA (EV ~USD 163/MT).
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