29 May 2015
4QFY15 Results Update | Sector:
Cement
The Ramco Cements
BSE SENSEX
27,828
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val INRm/Vol ‘000
Free float (%)
S&P CNX
8,434
TRCL IN
238.0
76.9/1.2
380/256
3/-3/7
77/247
57.7
CMP: INR323
TP: INR416 (+29%)
Buy
Strong margin show despite dismal volume; cost moderates QoQ; demand
recovery in south and pricing strength to be the key catalysts
Pricing strength offset dismal volume:
Ramco Cement’s (TRCL) 4QFY15 revenue
stood at INR9.6b (in line)—up 4% YoY and 22% QoQ). Led by strong uptrend in
cement prices in south, TRCL posted 12% QoQ (+22% YoY) growth in realizations,
which more than offset volume trend that were weakest in five years. 4QFY15
volume de-grew 16.3% YoY (+9% QoQ) to 1.88mt.
Strong margin show, 10-Q high profitability:
EBITDA stood at INR2.3b (v/s INR1b
in 3QFY15 and INR682m in 4QFY14) v/s est. of INR1.8b, translating into EBITDA
margin of 24.8% (+12.1ppQoQ, +17.4pp YoY). EBITDA/ton stood at INR1,269
(+INR687 QoQ, +INR966 YoY) v/s est. of INR924. Cement EBITDA/ton stood at
INR1,300. However, higher tax due to change in surcharge on corporate tax
dented PAT, which stood at INR934m (v/s est. of INR748m).
Efficiency measures and fuel price reduction benefit cost:
TRCL posted 4% QoQ
moderation in blended cost/ton (INR3,845/ton). Besides all-round cost efficiency
measures, this was led by softening fuel prices and rise in pet coke mix (~14%).
This was, however, partially negated by increase in royalty on limestone (from
INR63/ton in 3Q to INR80/ton), higher rail freight (negated benefits of diesel price
reduction).
Other updates:
(a) 0.95mt grinding unit at Visakhapatnam, AP commissioned in
March-15, (b) Wind farm division recorded a fall of 5.6crore units in generation of
power compared with FY14, (c) dividend of INR1.5 per share on equity capital
declared (v/s INR1/share in FY14), (d) capex of INR3b-3.5b in FY16 toward
maintenance and clinker de-bottlenecking at Jayanthipuram (AP) plant, which
would augment capacity by ~0.5mt, (e) targets 50% pet coke mix over medium
term.
Valuation and view:
We raise FY16/17E EPS by 16%/8% to factor in for higher
realizations in FY16 (INR22/bag YoY v/s the earlier estimate of INR17/bag YoY) and
lower volume (2% YoY in FY16 v/s the earlier estimate of 5%). The stock trades at
13.2x FY17E EPS and 7.9x FY17E EV/EBITDA, and EV/ton of USD97. We maintain
Buy
with a TP of INR416, an upside of 29% (valuing cement business at EV/ton of
USD120). Demand recovery in south (particularly in AP and Tamil Nadu) with
pricing strength would be the key catalysts.
Financials & Valuation (INR b)
Y/E MAR
2015 2016E 2017E
Sales
35.9 40.5 47.2
EBITDA
6.6
9.3 11.9
NP
2.4
3.9
5.8
Adj EPS (INR) 10.2 16.3 24.4
EPS Gr. (%) 106.8 60.3 49.6
BV/Sh. (INR) 111.1 125.1 146.1
RoE (%)
9.5 13.8 18.0
RoCE (%)
10.2 14.3 19.4
Payout (%)
17.1 14.2 14.3
Valuations
P/E (x)
31.7 19.8 13.2
P/BV (x)
2.9
2.6
2.2
EV/EBITDA
(x) 15.5 10.6
7.9
103
97
EV/Ton (USD)
114
Estimate change
TP change
Rating change
8-16%
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.