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Mixed bag performance; Cost dragged margins  

Result Synopsis

The Ramco Cements (TRCL) reported mixed bag performance. Despite seasonal weakness, TRCL posted 10% better revenue than anticipated, due to strong volume growth of 22% y/y and flat sequentially. However, escalated cost/te +7% above estimate resulted in a miss of 13% on EBITDA/te to Rs567/te. Whereas EBITDA eroded by 53% y/y and 38% q/q to Rs1.87bn (8% below YSECe) as total cost surged by 46% y/y and 9% q/q largely due to inflating power cost/te by 90% y/y and 27% q/q. TRCL reported an Adj. PAT of Rs31mn (93% below YSECe) declined by 99% y/y and 97% q/q on account of higher depreciation and finance cost. We expect volume to increase by 22/14% for FY23/24E with improving utilization of newly commissioned capacities. Thereby, we have increased our revenue estimate by 8/9% for FY23/24E. In the short run, we believe margins to remain under pressure due to energy price volatility (blended fuel cost $199/te as of Q2FY23) coupled with high exposure to the overcrowded south (higher OPC sales)&volatile demand. Hence, we have cut our EBITDA estimates by 25/5% for FY23/24E. We continue to like TRCL for its 1) strong retail presence in the south 2) low?cost cement producer (~22% green power share in Q2FY23) 3) steadily increasing capacity share. Management upgraded the capex guidance to Rs31.1bn (earlier Rs9bn) over FY23?24E, while we expect TRCL to generate operating cash flow of ~Rs24.7bn will partly fund capex.  As a result, net debt/EBITDA to remain elevated close to ~3x till FY24E and expected to erode PAT due to higher interest outgo. Hence, we trimmed our PAT estimate by 57% & 27% for FY23 & 24E. At CMP, stock trades at 20/12x EV/EBITDA on FY23/24E. We retain our BUY rating with a revised TP of Rs956 (earlier Rs1135), valuing the stock at 15x EV/EBITDA on FY24 estimates.

Result Highlights

* Despite seasonal weakness, TRCL reported a strong volume growth of 22% y/y and flat q/q (5% above YSECe).  

* Higher premium product sales +4% y/y curbed the impact of seasonal price correction and resulted in NSR of Rs5418/te (5% above YSECe); declined by 2% y/y but remained up by 1% q/q. As a result, revenue grew by 19% y/y and 1% q/q to Rs17.9bn (10% above YSECe).

* Total cost/te increased by 19% y/y and 9% q/q on account of increase in power cost/te by 90% y/y and 27% q/q to Rs2013/te. Cost increased by Rs776/te (+Rs390/te q/q) and NSR lower by Rs133/te y/y (+Rs42/te q/q) dented EBITDA by Rs909/te y/y and Rs349/te q/q to Rs567/te.   

* 7% higher than expected cost resulted in 8% miss on EBITDA to Rs1.9bn declined by 53% y/y and 38% q/q. While margins contracted by 1613bps y/y to 10.5% (v/s YSECe 12.6%) against 17% in Q1FY23.

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