The Ramco Cements
BSE SENSEX
27,698
S&P CNX
8,545
3 August 2016
1QFY17 Results Update | Sector: Cement
CMP: INR536
TP: INR625 (+17%)
Buy
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Robust volume growth amid weak realizations
Robust volume growth:
TRCL’s volumes grew 12% YoY to 2.08m tons in
1QFY17, driven by spurt in southern demand. Blended realization declined 3%
QoQ (below expectation), as prices failed to recover in the South. Revenue
grew 4% YoY to INR9.4b, a 7% miss. PAT grew 57% YoY to INR1.6b.
Realization drop offset by cost moderation:
Blended EBITDA/ton was
INR1,325 (+14% YoY, -9% QoQ). Realization dip was partially offset by 1% QoQ
(and 16% YoY) drop in unitary cost to INR3,217/ton, aided by (a)
lower
fuel
prices (pet coke mix near ~40%; cheaper imports), and (b) positive operating
leverage. Margins expanded 5.9pp YoY to 29.2%.
Further deleveraging:
TRCL reduced its debt by INR3.1b out of internal
accruals and reduction in working capital, which led to lower interest cost in
1QFY17. With no immediate expansion plans, it is poised for further
deleveraging.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
TRCL IN
238.1
127.6 / 1.9
595 / 300
-8/28/51
71.2
57.7
2018E
Financials & Valuations (INR b)
2016 2017E
Y/E Mar
Sales
35.9
38.2
EBITDA
10.5
11.6
NP
5.6
6.2
Adj EPS (INR)
23.4
26.2
EPS Gr. (%)
130.3
11.7
BV/Sh. (INR)
129.9 152.6
RoE (%)
19.5
18.5
RoCE (%)
13.2
13.1
Payout (%)
14.9
13.3
P/E (x)
22.9
20.5
EV/EBITDA (x)
14.1
12.2
EV/Ton (USD)
142
132
43.1
13.6
7.6
31.7
21.2
179.7
19.1
14.6
14.6
16.9
9.9
125
Best southern play, but valuations rich
TRCL offers strong play on southern recovery, given its (a) superior brand, (b) cost
efficiencies, aiding industry-leading profitability, and (c) visibility of de-leveraging.
Our assumption of 6% volume CAGR (early sign of southern recovery) and 3%
price CAGR (already disciplined base) over FY16-18 would drive 7-8% EBITDA/PAT
CAGR. The stock trades at 9.9x FY18E EV/EBITDA and EV/ton of USD125. We
maintain
Buy
with a TP of INR625, an upside of 17% (valuing cement business at
EV/ton of USD146, 11.5x FY18E EBITDA).
Estimate change
TP change
Rating change
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Aashumi Mehta
(Aashumi.Mehta@MotilalOswal.com); +91 22 6129 1537
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

The Ramco Cements
Exhibit 1:
Cement
volumes grew 12% YoY
Volume (MT)
Growth (%)
Exhibit 2:
Realizations down 9% QoQ (INR m)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Strong OPM led by better cost
EBITDA (INR m)
Margin (%)
Exhibit 4: Trend in EBITDA/ton
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Per ton analysis (incl Windmills, INR m)
INR/Ton
Net realization
RM Cost
Employee Expenses
Power, Oil & Fuel
Freight and Handling Outward
Other Expenses
Total Expenses
EBITDA
1QFY17
4,542
1QFY16
4,987
YoY (%)
-9
4QFY16
4,695
QoQ (%)
-3
807
340
623
853
594
3,217
1,325
1,009
344
804
1,010
660
3,826
1,161
-20
-1
-23
-15
-10
-16
14
766
312
624
891
646
3,239
1,455
5
9
0
-4
-8
-1
-9
Source: Company, MOSL
Exhibit 6: Revised forecast
(INR M)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
38,191
11,639
6,235
26.2
FY17E
Old
40,295
12,556
6,353
26.7
Chg (%)
-5.2
-7.3
-1.9
-1.9
Rev
43,061
13,556
7,556
31.7
FY18E
Old
45,344
14,510
7,777
32.7
Chg (%)
-5.0
-6.6
-2.9
-2.9
Source: Company, MOSL
3 August 2016
2

The Ramco Cements
Valuation and views
TRCL is among the lowest cost cement producers in south along with the most
premium brands. Strong brand and higher trade segment mix aids superior
pricing in core markets.
Its industry leading profitability is function of (a) premium pricing, (b) operating
efficiencies viz. higher usage of captive power (insulates against tariff rise or
unavailability), strategic location of plants, etc. and (c) continuous efforts
toward process optimization.
De-leveraging has already started with INR4.5-5b reduction in net debt over
FY16 (~INR22b, 0.7x). With no immediate capex plan (barring 0.5mt of clinker
de-bottlenecking), we expect TRCL to generate INR8-10b of annual FCF in FY17
aiding further reduction ahead.
Our assumption of 6% volume CAGR (early sign of southern recovery) and 3%
price CAGR (already disciplined base) over FY16-18, would drive 7-8%
EBITDA/PAT CAGR. The stock trades at 9.9x FY18E EV/EBITDA, and EV/ton of
USD125. We maintain
Buy
with a TP of INR625, an upside of 17% (valuing
cement business at EV/ton of USD146, 11.5x FY18E EBITDA).
Exhibit 8: Market mix
Growth (YoY %)
15.5 16.0 16.0
10
9
Andhra
Pradesh
12%
Karnataka
9%
8.0
8.7
Kerala
24%
Source: Company, MOSL
East (WB
and Orissa)
10%
Exhibit 7: Robust utilization headroom
Capacity (mt)
23
14.5 14.5 14.5
10.0
12
4
8.0
5.8
6.5
8.0
-9
7.3
3
12.5 12.5 12.5
11
3
-11
7.5
8.4
8.6
7.7
7.2
-6
Dispatch (mt)
Tamil Nadu
45%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18E
Source: Company, MOSL
Exhibit 9: Expect steady recovery in profitability
(EBITDA/ton) as southern demand picks up…
1,411 1,425
1,222
1,072
924
702
1,121 1,073
809
541
1,528
Exhibit 10: …and will trigger de-leveraging
Net debt (INR b)
24
16
1.7
1.9
25
1.6
28
1.6
27
1.3
26
29
DER (x) RHS
27
21
1.1
1.2
1.0
0.7
16
0.4
9
0.2
Source: Company, MOSL
Source: Company, MOSL
3 August 2016
3

The Ramco Cements
Exhibit 11: Robust utilization headroom
Capacity (mt)
23
10.0
8.0
4
8.0 -9 7.3
12
12.5
12.5 12.5
Dispatch (mt)
Growth (YoY %)
15.5 16.0 16.0
10
9
Andhra
Pradesh
12%
Karnataka
9%
8.0
8.7
Kerala
24%
Source: Company, MOSL
Exhibit 12: Market mix
East (WB
and Orissa)
10%
14.5 14.5 14.5
11
3
6.5
7.5
8.4
3
-11
-6
7.7
7.2
Tamil Nadu
45%
5.8
8.6
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18E
Source: Company, MOSL
Exhibit 13: Expect steady recovery in
(EBITDA/ton) as southern demand picks up…
1,411
1,222
1,072
924
702
1,121 1,073
809
541
profitability
Exhibit 14: …and will trigger de-leveraging
1,540 1,638
24
16
1.7
1.9
25
1.6
Net debt (INR b)
28
1.6
1.3
1.1
1.2
1.0
0.7
0.4
27
26
29
27
21
16
9
0.2
DER (x) RHS
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18E
Source: Company, MOSL
Source: Company, MOSL
3 August 2016
4

The Ramco Cements
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
2014
36,321
-4.1
5,117
14.1
3,063
2,054
1,881
1,141
1,314
-230
1,543
-44
210
10.8
1,377
1,172
-71.0
3.2
2015
35,939
-1.1
6,622
18.4
2,499
4,123
1,938
1,379
3,564
0
3,564
88
1,053
32.0
2,424
2,424
106.8
6.7
2016E
35,872
-0.2
10,504
29.3
2,670
7,834
1,802
999
7,031
0
7,031
1,067
381
20.6
5,583
5,583
130.4
15.6
2017E
38,191
6.5
11,639
30.5
2,807
8,832
1,229
1,305
8,907
0
8,907
2,672
0
30.0
6,235
6,235
11.7
16.3
(INR Million)
2018E
43,061
12.8
13,556
31.5
2,843
10,712
1,028
1,427
11,111
0
11,111
3,556
0
32.0
7,556
7,556
21.2
17.5
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates; * Adjusted for treasury stocks
2014
238
24,583
24,821
7,374
29,000
61,195
67,880
21,422
46,458
3,495
2,834
15,899
6,855
3,040
447
5,557
7,492
6,443
1,049
8,407
61,195
2015
238
26,214
26,452
8,271
27,119
61,841
72,350
23,920
48,429
2,575
3,558
15,763
5,206
3,802
618
6,136
8,861
7,238
1,623
6,901
61,841
2016E
238
30,688
30,926
8,521
22,056
61,503
77,475
26,591
50,884
1,000
3,654
16,081
5,490
4,685
908
4,998
8,749
8,311
438
7,332
61,503
2017E
238
36,093
36,331
8,521
19,056
63,908
78,475
29,398
49,077
2,000
3,654
18,446
5,443
4,354
3,206
5,443
9,269
8,467
802
9,178
63,908
(INR Million)
2018E
238
42,542
42,780
8,521
15,056
66,357
79,475
32,241
47,234
3,000
3,654
22,045
5,864
4,364
5,680
6,137
9,576
8,865
711
12,470
66,357
3 August 2016
5

The Ramco Cements
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Consol EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
EV/Ton (US$)
Dividend Yield (%)
Return Ratios (%)
RoIC
RoE
RoCE
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
2014
4.9
17.8
104.3
1.0
20.2
2015
10.2
20.7
111.1
1.5
17.1
2016E
23.4
34.7
129.9
3.0
14.9
2017E
26.2
38.0
152.6
3.0
13.3
2018E
31.7
43.7
179.7
4.0
14.6
108.9
30.1
5.1
4.2
29.8
157
0.2
52.6
25.9
4.8
4.2
22.9
156
0.3
22.9
15.5
4.1
4.1
14.1
142
0.6
20.5
14.1
3.5
3.7
12.2
132
0.6
16.9
12.3
3.0
3.1
9.9
125
0.7
3.4
4.8
5.5
5.1
9.5
7.0
11.2
19.5
13.2
11.1
18.5
13.1
13.4
19.1
14.6
0.6
68.9
26
0.6
52.9
34
0.6
55.9
41
0.6
52.0
36
0.6
49.7
32
2.1
1.2
1.8
1.8
2.0
2.3
1.0
0.7
0.5
0.4
Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2014
2,054
1,141
3,063
44
-1,121
5,180
230
5,410
-5,507
-97
-176
-5,684
15
2,330
-1,881
-279
184
-89
536
447
2015
4,123
1,379
2,499
-244
1,299
9,057
0
9,057
-3,550
5,507
-724
-4,274
-378
-1,881
-1,938
-415
-4,612
171
447
618
2016E
7,834
999
2,670
-1,198
1,603
11,908
0
11,908
-3,550
8,358
-95
-3,645
-278
-5,063
-1,802
-830
-7,974
289
618
908
2017E
8,832
1,305
2,807
-2,672
-915
9,357
0
9,357
-2,000
7,357
0
-2,000
0
-3,000
-1,229
-830
-5,059
2,297
908
3,205
(INR Million)
2018E
10,712
1,427
2,843
-3,556
-818
10,609
0
10,609
-2,000
8,609
0
-2,000
0
-4,000
-1,028
-1,107
-6,134
2,474
3,206
5,680
3 August 2016
6

The Ramco Cements
Corporate profile
Company description
The Ramco Cements (TRCL) is one of the top three
cement producers in South India with total
nameplate capacity of 12.5mtpa (0.95mtpa in West
Bengal and the balance in the South). It also has
operational wind farm capacity of 159MW and
157MW of CPP capacity. Despite the unfavorable
southern market, MC offers an attractive play due
to superior operating efficiency, premium
profitability and strong FCF visibility.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
42.3
21.9
15.9
19.9
Mar-16
42.3
38.2
0.0
19.5
Jun-15
42.3
23.0
15.5
19.2
Source: Capitaline
Exhibit 3: Top holders
Holder Name
The Governor Government Of Tamilnadu
Amrit Petroleums Pvt Limited
Kotak Select Focus Fund
The New India Assurance Company Limited
Aberdeen Global-Emerging Markets Smaller
Companies Fund
% Holding
3.4
2.1
1.5
1.4
1.4
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
P R Ramasubrahmaneya Rajha
K Selvanayagam
Designation
Chairman & MD
Company Secretary
Exhibit 5: Directors
Name
P R Ramasubrahmaneya Rajha
P R Venketrama Raja
M B N Rao*
Name
R S Agarwal*
M M Venkatachalam*
Chitra Venkatraman*
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
M S Jagannathan & N Krishnaswami
CNGSN & Associates
Geeyes & Co
Type
Statutory
Statutory
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
MOSL
forecast
26.2
31.7
Consensus
forecast
28.2
32.1
Variation
(%)
-7.0
-1.3
Source: Bloomberg
FY17
FY18
Source: Capitaline
3 August 2016
7

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The Ramco Cements
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3 August 2016
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