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New capacities to fuel growth…

Ramco Cements’ Q4FY21 numbers were in line with our estimates at the operational level. Sales volume increased 9.5% YoY to 3.21 MT, up 23% QoQ due to healthy demand in the east region and pick-up in infra demand from south region. Realisations also improved 6.8% YoY. However, it was down 1.3% QoQ due to a rise in non-trade mix. This led to revenue growth of 17% YoY, 21.3% QoQ to | 1,631 crore (vs. I-direct estimate: | 1,625 crore). Capacity utilisation for the quarter was at 69% vs. 56% while clinker utilisation was at 92% vs. 93% last year.

EBITDA per tonne recorded growth of 46.3% YoY to | 1,399/tonne as usage of low cost petcoke inventory helped the company to contain the power & fuel cost despite sharp rise in the petcoke prices. Average cost of debt declined from 6.71% to 6.1% YoY. However, higher tax outgo led to PAT growth of 47.2% YoY to | 214.4 crore (vs I-direct estimate: | 230.5 crore).

The expansion projects in Jayanthipuram and Kurnool have been delayed by three to six months due to the pandemic. We build in 18%, 19% sales volume growth for FY22E, FY23E, respectively. aided by new clinker and cement capacity addition.

New capacity to bring efficiency, spur growth from H2FY22E onwards

Incremental volumes from new units (2 MT already commissioned and 1 MT Odisha GU commissioned in September 2020) would help it to grow ahead of industry in FY22E. The company is also commissioning the clinkering unit of 1.5 MT along with 9 MW WHRS in Jayanthipuram, 2.25 MT clinker unit in Kurnool by Q1FY22E, Q2FY22E, respectively, against earlier target of March 2021. Factoring this, we model 11.6% revenue CAGR in FY20-23E. While newly commissioned units would lead to a reduction in transit distance for the target markets in East India, the commissioning of total 39 MW WHRS (18 MW in FY21, 9 MW in FY22E and 12 MW in FY23E) would bring efficiencies further, going forward (likely cost savings of | 130 crore/annum).

Debt levels to peak out in FY22E; aims to become debt free in three years thereafter

Ramco spent | 1,920 crore towards capex in FY20. During FY21, the company incurred | 1,766 crore. The balance capex to be incurred is | 500 crore to fund the ongoing capex (Odisha GU, Jayanthipuram clinker unit, WHRS, Kurnool expansion). While debt levels would rise, debt/EBITDA would improve from 2.0x in FY21 to 1.2x by FY23E. Average cost of interest on debt for the company is 6.1%, much lower than RoCE. Hence, once capex is complete, it would help improve RoE in double digits.

Valuation & Outlook

Long history of operations, brand equity, low cost producer and a healthy b/s are factors that helped the company to raise debt at competitive rates. We expect these factors to drive robust performance in future as well. We maintain our BUY rating with a revised TP of | 1150/share (valuing the company at 14x FY23E EV/EBITDA, EV/t of $200/t, earlier TP | 1100).

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