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Motilal Oswal
2024-12-02 12:34:07 pm | Source: Motilal Oswal Financial Services
Neutral The Ramco Cements Ltd For Target Rs.880 By Motilal Oswal Financial Services Ltd

Lower opex/t drives earnings beat Focusing on non-core asset monetization to reduce net debt

* TRCL’s 2QFY25 earnings beat our estimates, aided by lower-than-estimated opex/t (6% below our estimate). EBITDA declined ~22% YoY to INR3.1b (~26% beat) and EBITDA/t declined 20% YoY to INR695 (est. INR584). OPM dipped 1.8pp YoY to ~15% (est. ~12%). PAT declined 75% YoY to INR256m (vs. estimated loss of INR134m).

* The company is focusing on non-core asset monetization and has monetized non-core assets worth INR3.8b as of Oct’24 out of the targeted value of INR10b by Jun’25. It has also entered into an agreement to sell land worth INR740m, which is expected to be realized during 3QFY25. TRCL reiterated its capacity target of 30mtpa by Mar’26.

* Despite the earrings beat in 2Q, we largely maintain our earnings estimates for FY25-27 due to pricing pressure in the company’s core market (south) and higher competition in the near term in south region due to capacity expansion by leading players. We value TRCL at 12x Sep’26E EV/EBITDA to arrive at a TP of INR880. We reiterate our Neutral rating on the stock.

 

Volume declines ~3% YoY; realization/t down 10% YoY

* Revenue/EBITDA/PAT stood at INR20.4b/INR3.1b/INR256m (down 12%/ 22%/75% YoY and up 2%/26%/291% vs. our estimates) in 2QFY25. Sales volume fell ~3% YoY to 4.49mt (6% above estimates). Realization declined 10% YoY to INR4,539/t (down 3% vs. our estimate).

* Opex/t declined ~8% YoY, led by lower variable/other expenses/freight cost per ton by 13%/7%/1%. OPM dipped 1.8pp YoY to 15% and EBITDA/t was down 20% YoY at INR695. Depreciation/interest costs grew ~7%/3% YoY, whereas other income declined ~16% YoY.

* In 1HFY25, revenue/EBITDA/PAT stood at INR41.3b/INR6.3b/INR611m (down 10%/15%/66% YoY). Sales volume/realization declined 1%/9% YoY. EBITDA/t declined ~14% YoY to INR714. Based on our estimates, revenue is estimated to remain flat YoY in 2HFY25, EBITDA may grow ~2% YoY, and PAT may decline 1% YoY. In 2HFY25, we estimate 6% YoY volume growth and EBITDA/t of INR820 (vs. INR855 in 2HFY24).

 

Highlights from the management commentary

* General elections and extended monsoon affected overall demand during the quarter. However, the company continues to focus on right products for right applications to make its brand stronger.

* Blended fuel consumption cost was USD130/t (INR1.60/kcal) vs. USD137 (INR1.49/kcal) in 1QFY25. Green power share stood at ~39% vs. ~33% in 1Q.

* It maintained capex guidance of INR12b for FY25. Capex stood at INR2.6b in 2QFY25 and INR5.4b in 1HFY25. Net debt stood at INR51.0b vs. INR49.7b as of Jun’24. The net debt-to-EBITDA ratio stood at 4.0x vs. 3.8x as of Jun’24.

 

View and valuation

* We estimate the company’s volume growth to moderate to a ~7% CAGR over FY24-27 vs. ~23% over FY21-24. Higher competition and pricing pressure in its key markets, leveraged balance sheet, and low return ratios (RoE/ROCE estimated in mid-single digits till FY26) will keep stock price range-bound. Its net debt increased to INR47b in Mar’24 v/s INR29.3b in FY21 and we expect it to remain at INR50b in FY26 (net-debt to EBITDA at 2.7x in FY26).

* At CMP, the stock trades at 13x/11x FY25E/FY26E EV/EBITDA. We value TRCL at 12x Sep’26E EV/EBITDA and reiterate our Neutral rating with a TP of INR880. Key factors to monitor would be company’s capex plans and competitive intensity in the South/East regions

 

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