For Q3 FY21, Ramco Cements (Ramco) reported largely in-line operational performance, while net profit lagged estimates on account of a higher effective tax rate (ETR). Standalone revenues rose by 4.8% yoy (up 6.5% qoq) to Rs 1339 cr led by a 12.7% yoy rise in blended realisations on account of higher cement prices yoy in South India. Cement volumes declined by 8% yoy to 2.6 mn tonnes (although better than Sharekhan estimates) as it faced weak demand in key Southern states owing to extended and above normal monsoon.

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However, Ramco Cements registered good growth in Eastern regions. EBITDA per tonne more than doubled to Rs. 1,432 (down 15% qoq) led by higher realisations and lower power & fuel costs (down 10% yoy on per tonne basis owing to low cost inventory base for petcoke) and a fall in other expenses (of 18% yoy led by the company’s austerity measure). Hence, operating profit rose 96% yoy to Rs 397 cr.

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Ramco Cements Strong OPM and lower other expenses led to a net profit growth of 112% yoy to Rs 201 cr (lower than our estimates on account of a higher ETR). With regards to capacity expansions, its clinker units of 1.5 MTPA and 2.25 MTPA at Jayanthipuram and Kurnool is delayed due to COVID-led challenges and is now expected to commission during Q1FY2022 (earlier by March 2021). The 1MTPA grinding unit, a 12MW waste heat recovery system (WHRS) and an 18 MW thermal power plant in Kurnool are expected to be commissioned during FY2022.

Ramco Cements incurred a capex of Rs 1166 cr during 9M FY21 while it is left with a balance capex of Rs 537 cr for ongoing expansions. The management expects a sharp increase in volumes during FY2022.

Sharekhan have fine tuned our estimates factoring lower volume offtake and higher EBITDA/tonne for FY2021-FY2023E. Ramco Cements is trading at an EV/EBITDA of 14.2x/12.4x its FY2022E/ FY2023E earnings, which Sharekhan believes leaves room for a further upside. Sharekhan maintains Buy rating and revises target price to Rs 1000 on Ramco Cements.

Ramco Cements Key positives:

Volume offtake better-than-expected led by growth in Eastern region
Management guides for a strong volume growth in FY2022

Ramco Cements Key negatives:

Demand in South affected by extended and above-normal monsoon
A couple of expansion projects were delayed due to COVID-related challenges.

Ramco Cements Key Risks:

Weak demand and pricing environment in South India would affect profitability