Buy The Ramco Cements Ltd For Target Rs. 1,188 - Yes Securities
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Lower South Contribution And Stiff Cost Eroded Profitability
Result Highlights
* Volume grew by 11%q/q and 15% y/y to 3.01MT (YSEC est. 2.87MT) in 3QFY22 but Net Realization/t (Blended) stood at Rs5,163/t (-7% q/q and +0.4% y/y) due to higher dispatches to the east (higher than historical contribution of 22-28%). Differential between east and south NSR/t came in at Rs1000/t.
* TRCL reported revenue growth of just +3.3% q/q (+15.5% y/y) at Rs15.5bn v/s YSEC est. 16bn in 3QFY22 due to higher volumes and soft realization in east.
* EBITDA decline by 42.7% q/q and 42.5% y/y to Rs2.3bn (v/s YSEC est. Rs4.3bn) in 3QFY22 led by impact of inflated fuel cost and RM cost.
* The unitary power/freight/RM cost increase by +31/0.2/8% q/q and +69/-4/28% y/y respectively, resulted in blended EBITDA/t decline by 48% q/q and 50% y/y to Rs761/t in 3QFY22.
* Adjusted PAT de-grew by 85% q/q and 63% y/y to Rs756mn for Q3FY22 due sharp fall in operational profit.
* Net debt as on end of Dec’21 was Rs37.6bn with gross debt ~Rs38.4bn while cash was ~Rs800mn. Debt/Equity stood at 0.6x for Q3FY22.
* Trade to non-trade mix for south was 80% for the Q3FY22 while for Kerala it was 95%, Karnataka and Tamil Nadu 80% and for east it was 55%.
Our View
Due to the unseasonal rains in southern states TRCL has increased dispatches to the east resulted in higher volumes but has adversely affected the realizations. With lower blended realization by 7% q/q, RM cost inflated by 8.4% q/q and power cost higher by 30.6%q/q, EBITDA/t eroded sharply so we aligned our estimates and cut down EBITDA by 10.9% y/y / 1.2% y/y to Rs16bn/Rs20.2bn for FY22E/FY23E respectively. While we have cut down our EBITDA estimates for the FY22 still APAT is up by 8.4% to Rs10.8bn because of the tax reversal of Rs2.5bn in Q2FY22. For FY23E APAT slightly lower by 1.6% due to lower realization assumption. Input cost has started softening from Dec’21 which will start reflecting from FY23E hence will not affect profitability in FY23E. TRCL is expected to generate Net free cashflow of Rs22.1bn by incurring the CAPEX of Rs24.9bn over FY22E-24E. Net Debt/EBITDA continues to trend down to 1.9/1.2/0.7 for FY22E/ FY23E/FY24E. At CMP, stock trades at 15/12/9.9x of EBITDA on FY22/23/24E. Thus, we retain our BUY recommendation with a TP of Rs1,188 (previously Rs1,200), valuing the stock at 15x EV/EBITDA on the FY23E estimate.
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