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Q1 EBITDA misses, cyclical upturn largely priced in; Retain Hold

* Ramco’s Q1FY22 EBITDA grew 40% YoY to Rs3.6bn, 6% below our forecast of Rs3.9bn (but broadly in line with consensus) due to lower volumes and poor operating leverage. Blended EBITDA/ton increased 27% YoY to Rs1,700 (Emkay: Rs1,653), owing to better-than-expected cement realization.

* Ramco is nearing completion of 40% capacity expansion projects to 20mt and is poised to benefit from the cyclical volume upturn, which should boost its RoIC to mid-teens by FY23E and well over 20% over the next 4-5 years, in our view.

* Factoring in higher realization, we increase our FY22-23 EBITDA estimates by 5-9%. We roll forward to Sep’22E (from Jun’22E) and increase our TP by 15% to Rs1,175 (from Rs1,020). Our DCF-based TP (11.25% WACC, 7.5% FCFF growth post FY26) implies a 1-year forward EV/EBITDA of 13.5x (vs. 15x currently). Maintain Hold.

Revenue increased 18% YoY to Rs12.2bn.

Volumes grew 11% YoY to 2.14mt (Emkay est. 2.34mt), implying clinker capacity utilization at 71% (down 2,100bps QoQ) in Q1FY22 as demand was largely affected by lockdowns in May/Jun’21. Management expects demand to bounce back and volumes recovery in South to be better than other regions once normalcy returns. Cement realization jumped 11% QoQ (+7% YoY) to Rs5,629/ton (Emkay est.- Rs5,463), owing to significant price hikes in South and East regions. With increasing input prices, management expects cement prices to go up further.

Cement EBITDA/ton improved 27% YoY to Rs1,636 (Emkay: Rs1,598).

Total cost/ton increased 10% QoQ (flat YoY) vs. our estimate of a 6.5% QoQ increase, largely owing to higher-than-expected fixed cost/ton. Variable cost/ton stood flat YoY/QoQ, broadly in line with estimates. Petcoke consumption cost in Q1FY22 stood at US$105-110/ton (+14% QoQ) vs. spot prices of US$150/ton. Management said that Ramco is not buying any petcoke at spot prices and has sufficient inventory for next 4-5 months. With the increasing share of WHRS and AFR, management does not expect P&F costs to go up significantly.

The ongoing expansion project of 2.25mt clinker plant at Kurnool,

AP, is expected to be operational before Q2FY22. The 1mt grinding unit at Kurnool, 18MW TPP, 12MW WHRS and railway siding are expected to be operational in FY23. Balance 9MW (out of 27MW) of WHRS in Jayanthipuram is expected to be commissioned in FY22.

Ramco has announced a new clinker line of 3,000tpd

at RR Nagar at capex of Rs4.8bn. and it will de-commission 1,450tpd clinker line, leading to a net increase in clinker capacity of 0.35mt. It is expected to be commissioned in 15 months post receipt of environment clearance (likely in Sep’21). Ramco is also setting up four dry mortar plants (capacity of 30TPH for each unit) at a capex of Rs1.6bn.

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