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Adverse regional mix leads to weaker margins

Maintain Neutral – valuation prices in strong growth outlook

* The Ramco Cements (TRCL)’s 4Q result highlights the adverse impact of higher sales in the East India market, resulting in QoQ decline in EBITDA/t to INR1,399 – weighed by both lower realization and higher cost.

* Our FY22E/FY23E estimates are broadly unchanged. We retain our Neutral rating as we believe the valuation at 13.1x FY23E EV/EBITDA prices in the expectation of a strong 16% volume CAGR over FY21–23E.

EBITDA up 61% YoY

* Revenue/EBITDA/PAT rose 17%/61%/47% YoY to INR16.3b/INR4.5b/INR2.1b (+2%/+3%/-11% v/s our estimates).

* Volumes were up 9% YoY to 3.21mt (v/s our est. of 3.15mt), whereas EBITDA/t declined 8% QoQ to INR1,399/t (+47% YoY). Blended realization declined 1% QoQ to INR5,080/t (in line with our est.), due to higher share of sales in East India, while it was up 7% YoY on higher prices in South India.

* Cost/t fell 3% YoY to INR3,681/t on better fixed cost absorption (from higher volumes) and lower power and fuel costs (due to low-cost inventory).

* FY21 OCF/capex stood at INR17.3b/INR18.0b (v/s INR7.0b/INR18.8b in FY20). FCF was negative for FY21/FY20 at INR0.7b/INR11.8b on account of capex.

* FY21 revenue/EBITDA/PAT stood at INR52.7b/INR15.5b/INR7.6b (- 1%/+39%/+27% YoY). Volumes declined 11% YoY to 9.98mt. The EBITDA margin stood at 29.4% (v/s 20.9% in FY20).

Highlights from management commentary

* Clinker expansion projects at Jayanthipuram (1.5mtpa) and Kurnool (2.25mtpa) have been delayed to Jun’21 and Sep’21, respectively, due to labor availability issues. At Kurnool, the commissioning of a 1mtpa grinding unit, a 12MW waste heat recovery system (WHRS), and an 18MW thermal power plant (TPP) have been postponed to FY23.

* The petcoke mix stood at 23%/41% in 4QFY21/FY21 v/s 57%/48% in 4QFY20/FY20. TRCL benefitted from low-cost inventory in 4QFY21 and continues to carry this even in 1QFY22. This should keep the power and fuel cost increase in check despite higher petcoke and coal prices.

* Clinker utilization stood at 92%/73% in 4QFY21/FY21.

* Gross debt stands at INR31.0b, including INR2.2b interest-free debt. Average cost of debt stands at 6.1% p.a. v/s 6.71% p.a. in Mar’20. Net debt/EBITDA stands at 1.89 v/s 2.52 in Mar’20.

* The company would not earn any fiscal incentive on its new projects.

Valuation and view

* TRCL is expected to gain market share in its operating regions (South/East), led by capacity expansions over the next six months. We expect a 16% volume CAGR over FY21–23E, supported by a low base and expansions.

* The stock trades at 13.1x FY23E EV/EBITDA and USD142/t capacity, at a significant premium to peers. We value it at 13x FY23E EV/EBITDA (in line with the 10-yr average) to arrive at TP of INR960. We maintain Neutral.

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