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Mixed numbers; rise in power & fuel cost impacted margins

Healthy volumes drove revenue growth: Despite Q2FY23 being a weak quarter for the cement sector, Ramco posted decent revenue growth of 19.3% YoY to Rs 1,794cr. The growth was driven by volume growth of 22% YoY at 3.1mn tons as compared to 2.7mn tons in Q2FY22. However, realization per ton declined by 2.3% to Rs 5,419. Comparing quarterly numbers, net sales grew by 0.8% wherein growth was driven by realization of 0.8% while volumes were flat.

Power & fuel cost impacted margins: Gross margins were impacted due to high raw material expenses. Further, EBITDA de-grew by 53% YoY and 38% QoQ to Rs 188cr and EBITDA margins declined by 1,613bps YoY and 657bps QoQ to 10.5%. Margins were impacted due to sharp rise in power & fuel cost (rise of 132.8% YoY and 27.1% QoQ). Also, EBITDA/ton witnessed a fall to Rs 588 from 1,502 in Q2FY22 (down by 60.9% YoY) and Rs 935 in Q1FY23 (down by 37.1% QoQ). In addition, a rise in depreciation (up by 23.4% YoY and 14.2% QoQ) and interest cost (up by 87.2% YoY and 15.9% QoQ) too impacted the bottom-line. Thus, PAT de-grew by 97.6% YoY and 89.2% QoQ to Rs 12cr and margin declined by 3386bps YoY and 568bps QoQ.

Concall highlights: 1) Management could not pass on the full cost increase. 2) Future plan is to focus more on premium products to revive margins as well as its strategy of right cement for right applications which is yielding good results for the company. 3) Total Capex guidance revised to 26bn till FY24E, out of which ~5bn incurred in H1FY23 while 9-10bn is expected to be incurred in H2FY23 and remaining in FY24. 4) Share of premium products improved from 4% to 24% in H1FY23. 5) Utilization improved to 66% in Q2FY23 from 55% in Q2FY22. 6) Increase in usage of green power to 22% in Q2FY23 from 15% in Q2FY22.

Outlook & Valuation: From a short-term perspective, Ramco will continue facing a challenging environment for margins on the back of power and fuel cost at its peak. However, the company’s medium to long term growth prospects seems better given government spending on infrastructure and increasing demand would aid volume growth. In addition, Ramco’s focus on increasing utilization level, product mix with more of premium products and gradual decrease in fuel prices and other commodities will bode well for margins. We have estimated its revenue/EBITDA to grow at a CAGR of 14%/9% over FY22-FY25E and have maintained a buy rating on the stock with a revised target price of Rs 913.

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