Volume surprise; margins in-line
The Ramco Cements (TRCL)’s Q2FY20 EBITDA increased 19% YoY to Rs3bn – higher than our / consensus estimates mainly led by better than expected volumes. Volume growth surprised positively with 10% YoY growth (I-Sec: 1% YoY); while realisation declined 5.6% QoQ vs our estimate of 6.4% QoQ decline. Net debt increased by Rs7bn to Rs23bn in H1FY20 owing to Rs4.2bn working capital need and Rs8.3bn capex spend. TRCL is on track (with slight delays due to extended monsoon) to increase capacity by >40% to 20mnte by 2020. We broadly maintain our FY20-21E EBITDA and raise our target price to Rs900/share (earlier: Rs872) based on 13x Sep’21E EV/E on half yearly roll-over. Maintain BUY.
* Revenue increased 11% YoY to Rs13.1bn (I-Sec: Rs12bn).
Cement volumes surprised positively with 10% growth YoY to 2.7mnte with better demand in its key markets of Tamil Nadu, Kerala and Odisha and higher export volumes. Export volumes increased 32% YoY to 70kte. Realisation increased 1.8% YoY/ declined 5.6% QoQ to Rs4,708/te (I-Sec: Rs4,669/te) owing to better market mix.
* Cement EBITDA/te increased 14% YoY to Rs995/te (I-Sec: Rs963/te).
Cement cost/te declined 1% YoY/ increased 1% QoQ, in-line with our estimates. Raw material plus power and fuel expenses/te remained broadly flat QoQ; while freight costs/te declined 4.8% QoQ and 9.5% YoY. TRCL launched its premium product SUPERCRETE in Karnataka and Andhra Pradesh during the quarter (in addition to Tamil Nadu and Kerala) which resulted in higher launch expenses of Rs150mn during Q2FY20. Also, higher actuarial provisions owing to low interest rates resulted in employee expenses increasing 10% QoQ and 16% YoY. PAT increased 44% YoY to Rs1.7bn (I-Sec: Rs1.4bn) owing to higher EBITDA and lower tax rate. Tax rate for the quarter stood at 21% (I-Sec: 28%) on MAT credit of Rs117mn.
* Windmill revenues declined 22% YoY to Rs306mn
led by 19% YoY decline in wind power generation to 114mn units. Power realisation declined 4% YoY to Rs2.68/ p.u. Windmill EBITDA declined 26% YoY to Rs254mn (I-Sec: Rs349mn).
* TRCL is on track to increase capacity by >40% to 20mnte by 2020
with slight delay due to extended monsoon. The unit-2 of cement grinding unit in Kolaghat, West Bengal having capacity of 1mnte has commenced commercial production from 26th Sep’19. TRCL’s clinker capacity expansion of 1.5mnte at Jayanthipuram with 27MW WHRS and 1.1mnte Vizag cement capacity will be commissioned in Sep’20 and Mar’20, respectively. New greenfield unit of 0.9mnte in Odisha will commission by Dec’19. New greenfield plant at Kurnool, Andhra Pradesh with clinker capacity of 2.25mnte and cement capacity of 1mnte along with railway siding, 10MW WHRS and 15MW CPP is expected by Mar’21.
* We factor-in 9% volume CAGR over FY20E-FY21E
and expect EBITDA/te to increase from Rs921/te in FY19 to Rs1,240/te by FY22E (H1FY20- Rs1,168/te)
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