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In the best position to address mounting demand; retaining a Buy

Good demand and greater operating efficiency led to Ramco reporting a firm Q3 performance. While various cost-saving levers are in place to improve operating efficiency, land monetisation is also on the cards to fund expansions and de-leveraging. However, management retained its capex guidance for FY23/24 at ~Rs17.17bn/ Rs8.9bn. We maintain our Buy rating, at a higher TP of Rs838 (earlier Rs752).

Bright demand outlook. At 70% capacity, volumes grew 18.7% y/y to 3.57m tonnes, backed by firm infra/IHB demand and the ramping-up of the newly commissioned capacities. Further, 8.8% y/y realisation/ton growth pushed up revenue 29.2% y/y to Rs19.9bn. While the price situation would continue to be volatile, the demand outlook is strong on high infra demand and coming election. Volumes would grow ~27% in FY23 and in high double-digits in FY24. We expect 16%/18% volume/revenue CAGRs over FY22-25, by capacity ramp-up

Cost savings on the cards. Rising utilisation, the share of premium cement and realisations boosted EBITDA 19.5% y/y to Rs2.7bn and EBITDA/ton, 0.6% y/y to Rs747 amid the high cost context. On rising petcoke/coal costs, fuelconsumption cost is guided to remain at the Q3 level (Rs2.43/kcal). Greater utilisation at Kolimigundla would rationalise variable costs, completion of the RR Nagar modernisation would save inter-unit transfer costs and raise profitability on higher realisations and market-share gain. Further, the coming 12 MW WHRS and 25MW wind-turbine captive-consumption would save respectively Rs80-100 and Rs50-80 per tonne. We expect a 10% CAGR in EBITDA over FY22-25.

Business outlook, valuations. To fund expansions and de-levering, Ramco plans to sell non-core assets (land ~Rs3-4bn). Net debt at 31st Dec’22 was Rs45.56bn (Rs47.41bn at end-Sep’22). Capex guidance for FY23 and FY24 retained at ~Rs17.17bn and Rs8.9bn. We retain our Buy rating, at a TP of Rs.838 based on 15x FY25e EV/EBITDA. Risks: Demand slowdown; rise in petcoke/diesel costs.

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