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Volumes to be ramped-up

The Ramco Cements’ (TRCL) Q1FY22 EBITDA at Rs3.6bn (up 40% YoY) was in line with consensus estimates. Cement EBITDA/te was up 15% QoQ at Rs1,636/te led by higher realisation (up 11% QoQ), which was partly offset by higher cement cost/te, up 10% QoQ. On a YoY basis, realisation was up 6.5%, while cost/te remained flat resulting in 27% YoY increase in EBITDA/te. TRCL, on 28th Jun’21, commissioned Line-III of Jayanthipuram plant with clinker manufacturing capacity of 1.5mnte.

Its 2.25mnte clinker capacity expansion in Kurnool is expected to be commissioned before Q2FY22-end. Hence, we expect TRCL to report strong 15% volume CAGR over FY22E-FY23E. We broadly maintain our FY22-23E EBITDA, while raise our target price to Rs1,222/sh (earlier Rs1,190/sh) based on 13xJun’23E EV/E on quarterly roll-over. Maintain BUY. Key risk: lower than expected demand / prices

* Revenues increased 18% YoY to Rs12.2bn: Volumes grew 10.5% YoY on a low base and declined 33% QoQ to 2.14mnte (71% clinker utilisation in Q1FY22) as demand was hit in South India due to lockdown in May/Jun’21 and heavy monsoon. Cement realisation increased 11% QoQ / 6.5% YoY to Rs5,629/te owing to higher prices in the South and East. Individual housing demand marginally declined in the South, whereas it saw good growth in the East. Prices are up YoY and demand from infrastructure and commercial segments is picking up in both the markets. Management expects strong demand recovery to sustain in the Eastern market and sees signs of demand recovery in the South.

* Cement EBITDA/te grew 27% YoY to Rs1,636/te (I-Sec: Rs1,558/te). Cost/te remained flat YoY / increased 9.7% QoQ to Rs4,039/te. Raw material plus power & fuel cost/te rose only 1.1% QoQ (down 1.5% YoY) despite significantly higher input prices, due to increased usage of relatively lower priced fuels, viz. imported coal, alternate fuels and operation of 18MW WHRS in JPM. Share of green energy in the power mix stood at 14% in Q1FY22 vs 5% in Q1FY21. Petcoke usage was down to 33% in Q1FY22 against 56% in Q1FY21. Freight cost/te rose only 3% YoY (flat QoQ) despite higher diesel prices and increased lead distance (346km in Q1FY22 vs 315km in Q1FY21) offset by lower godown maintenance and handling expenses. Windmill segment reported EBITDA of Rs138mn, up 24% YoY.

* TRCL incurred capex of ~Rs4bn in Q1FY22 and announced two new projects pertaining to plant modernisation in Ramasamy Raja Nagar (estimated cost: Rs4.8bn) and additional capacity creation for dry motor business in four of its plants (total estimated cost: Rs1.6bn). In Kurnool, clinker capacity of 2.25mtpa is expected to be commissioned before Q2FY22-end whereas the cement capacity of 1mtpa, WHRS capacity of 12MW and TPP capacity of 18MW are likely to go onstream during FY23. 9MW WHRS in JPM is expected to be commissioned in FY22.

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