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Higher East volumes aided margins

Result Synopsis

The Ramco Cements (TRCL) reported better?than?expected performance by posting EBITDA/te of Rs916 (v/s YSEC est. of Rs870) due to flat cost/te sequentially (5% lower than YSEC est.) in Q1FY23. Despite sequentially flat NSR (?7% y/y), the volume growth of 4% q/q (+55% y/y) resulted in revenue of Rs17.8bn (v/s YSEC est. of 16.7bn) in Q1FY23. Reported EBITDA/PAT stood at Rs3/1.1bn declined by 17/36% y/y due to surge in power & freight cost/te by +54% & 21% y/y respectively led jump in total cost/te by +10% y/y. Management expects ~12?15% of volume growth for this fiscal with the increasing utilization of the newly added capacity. With the newly added capacities in east, TRCL to diversify its geographical existence thereby increase share of blended cement (~74% as of Q1FY23). Although, TRCL increasing exposure to low realization markets (AP/Telangana & East) will softened its NSR outlook, but the increasing share of blended cement sales will continue to improve the cost structure. However, in a short run TRCL’s margins will remained under pressure due to unprecedented surge in energy cost (blended fuel cost $178/te as of Q1FY23) along with high exposure to the south (highly OPC) overcapacity & volatile demand market. We continue to like TRCL for its 1) strong retail presence in the south 2) low?cost cement producer – For Q1FY23 ~19% WHRS/renewable share 3) growth oriented – steadily increasing capacity share. We believe TRCL to generate healthy operating cash flow of Rs26.8bn and its fund ongoing capex (Rs8.5bn) and tends to deleverage its B/S (10bn) over FY23?24E would aid to lower the Net Debt/EBITDA to 1.3x by FY24E v/s 2.9x FY22. Thus, we retain our BUY recommendation with a TP of Rs1135, valuing the stock at 15x EV/EBITDA on the FY24E.

Result Highlights

* TRCL reported revenue of Rs17.8bn up by +4% q/q and +44% y/y (v/s YSEC est. of Rs16.7bn a beat of +6%) mainly due to strong volume growth of +4% q/q and +55% y/y to 3.31MT (v/s YSEC est. 3MT) in Q1FY23. NSR remained flat sequentially to Rs5376/te, while decline by 7% y/y (4% lower than YSEC est.) due to increasing east volumes share to +30% v/s ~18?20% in Q4FY22.  

* Overall cost/te remained flat q/q (+10% y/y), while stood 5% lower than YSEC est. resulted in EBITDA/te beat of +5% to Rs916 translates in EBITDA of Rs3bn by 3% q/q (?17% y/y) in Q1FY23. EBITDA margins stood at 17% v/s YSEC est 15.6% in Q1FY23.

* TRCL reported PAT of Rs1.09bn (v/s YSEC est. of Rs0.95bn) decline by 8% q/q and 37% y/y due to increase in finance cost (+42% q/q and +95% y/y) on account of commissioning clinkering unit in JPM Line III.

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