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Inline EBITDA; Q1FY23 margins to be lower

The Ramco Cements (TRCL) posted in-line EBITDA of Rs2.95bn (up 28% QoQ/ down 34% YoY; CentrumE: Rs2.9bn). The sequential increase was due to higher volume and increase in realization while CoP remained flat QoQ. As a result, EBITDA/t increased by 20.5% QOQ to Rs925/t. The cement demand rebounded well in Q4FY22 after subdued Q3FY22 and still remains relatively good in its key market. As a result, TRCL hiked prices by ~Rs15/bag in April and expects >3mt sales volume in Q1FY23. However, rising pet coke prices remains area of concern due to inability to pass-on fully to customers. Hence we decrease our EBITDA estimate by 37%/20% in FY23/FY24 to factor in higher coal prices. We value TRCL at 13x FY24E EV/EBITDA and arrive at a target price of Rs790 (earlier Rs994). With fall in stock price, we upgrade the stock to BUY from ADD

Higher volumes and realization improves revenue sequentially

TRCL’s volumes were up 6.1% QoQ/ down 0.6% YoY to 3.19mt as demand gradually picked up in February and March 2022. With higher volumes, realisations also increased in Q4FY22 by Rs200/t QoQ to Rs5312/t. As a result, net sales at Rs17bn were up by 10% QoQ/ 4.8% YoY. Demand scenario is better in East markets than South. Hence, during April 2022, TRCL further increased cement prices by Rs15-20/bag in East and Rs10- 15/bag in South. Management also guided >3mt sales volume in Q1FY23.

Sharp increase in Power & Fuel cost depresses EBITDA

Overall operating cost/t was Rs4,433, up 1.1% QoQ/20.5% YoY. Power & Fuel cost/t at Rs1,463, was up 6% QoQ due to sharp increase in pet coke prices. As a result, EBITDA/t inched up by 20.5% QoQ/but down 34% YoY to Rs925. Management guided price increase of ~Rs40/bag required to pass-on full increase in fuel price. As monsoon season is approaching, sustainability of current price will be monitored.

Trial production at Kurnool plant started; evaluating next phase of expansion

TRCL commenced trail production of 2.25mtpa clinker capacity and 1mtpa grinding unit at Kurnool (AP). The grinding facility along with 6MW of WHRS is expected to be commissioned by July 2022. The balance 6MW of WHRS and 18MW Thermal power plant will be commission by March 2023. Capex spend during the quarter stood at Rs4.3bn (vs Rs4.86bn in Q3FY22). Overall it spent Rs18.16bn in FY22. The capex required for expansion projects is Rs13.5bn out of which Rs6bn will be spent in FY23 and rest Rs7.5bn in FY24.

Outlook and valuation – Upgrade to BUY

With onset of monsoon and inability to raise cement prices further, margins are expected to be hit in 1HFY23 amid elevated pet coke prices. The commissioning of 1mtpa grinding unit by July 2022 will help to deliver ~14% YoY volume growth to 12.6mt in FY23 and 11% YoY growth in FY24 to 14mt. Given TRCL’s focus on capacity expansion, any major deleveraging of balance sheet is unlikely in FY23. We value TRCL at 13x FY24E EV/EBITDA and arrive at a target price of Rs790. We upgrade the stock to BUY from ADD

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