Strong volume growth leads to better performance
Ramco Cements Q3FY17 EBITDA of Rs 2.62 bn (+7% YoY) came marginally lower than expected on account of lower than expected margins. Though volume growth of 22% YoY was better than expectation of 13% YoY, realisation came a tad lower with ~2% QoQ decline. EBITDA/ton stood at Rs 1319/t, declined by 12% YoY (on lower realisations). PAT at Rs 1.52 bn (+29% YoY) came lower than estimate, led by lower than expected operational performance and lower other income (-34% QoQ). Going ahead, we estimate PAT CAGR of 15% over FY16-19E led by 10% volume CAGR and reduction in interest cost.
Volumes grew strongly by 22% YoY; EBITDA/t stands at Rs 1319/t
Net sales increased by 15% YoY to Rs 9.3bn led by strong volume growth which offset the impact of lower realisations. Pick-up in cement demand in south region coupled with low base (Q3FY16 volume declined 6% YoY) led volume growth of ~22% YoY to 1.99 mt. However, the cement realisation remained lower (-6% YoY to Rs 4682/t) as the prices remained lower in south & east regions on YoY basis. EBITDA growth restricted to 7% YoY to Rs 2.62 bn as the EBITDA/ton declined 12% YoY to Rs 1319/t, partially negating the impact of strong volumes. Total cost/ton declined by ~4% YoY to Rs 3362/t (primarily led by 9% YoY decline in energy cost and 16% YoY decline in raw material cost/t).
Outlook and Valuation
We reduce FY17E EBITDA estimate by ~4% to factor in slightly lower margins (though we increase volume assumptions by ~2%). FY18E/19E estimates have been broadly maintained. We estimate volume growth of ~10% CAGR during FY16-19E and EBITDA/t improvement to Rs 1,508/t by FY19E from Rs1452/t in FY16, implying EBITDA CAGR of 11% during the period. With increase in profitability and reduction in debt going ahead, net D/E is expected to come down. Valuation at 13.4x/11.2x FY18E/19E EV/EBITDA looks fair (after the recent run-up in stock price by 18% in one month) and factors in most of the positives like high growth potential (from improving fundamentals in south region) and focus on de-leveraging. We downgrade Ramco to Hold (from Buy earlier) with revised TP of Rs 723 (based on 13x Sept-18E EV/EBITDA).
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