1QFY19 Result Update The Ramco Cements 3 August 218 Reuters: TRCE.BO; Bloomberg: TRCL IN Challenging Business Environment Aptly Handled The Ramco Cements (TRCL) reported a stable operating performance driven by steady realisation (marginal decline), despite strong volume growth. Revenues grew ~19% YoY to 2.61mnmt (above our estimate of 2.47mnmt) driven by healthy demand from the eastern region and recovery in TRCL s key markets like Tamil Nadu (TN). Realisation marginally declined by ~1.5% YoY to Rs4,537/tn, despite strong volume growth because of the judicious sales mix in core markets and new regions. Cost escalation because of higher energy and logistics costs contributed to operating cost inflation of ~% YoY at Rs3,79/tn. Limited pass- through led to EBITDA margin compression of 771bps YoY (partially because of a higher base) to 2.5% YoY. EBITDA fell 13.8% to Rs2.5bn and EBITDA/tn declined ~3% YoY to Rs919from Rs958. Debt repayment helped lower interest expense by 26% YoY to Rs114mn. Incentives from the new Vizag unit (in FY18) contributed to higher operating income of Rs339mn. Effectively, adjusted PAT fell ~2% YoY to Rs1.25bn. We have valued TRCL at a replacement cost of Rs 11.7bn/mt assigned to its operating capacity of 16.6mt (based on the expanded FY2E clinker capacity) and the excess grinding capacity (4mt based on FY2E capacity) at Rs1.75bn to arrive at a target price of Rs813 (revised from Rs894 earlier). We have assigned ~5% premium to the operating capacity to arrive at TRCL s fair value as we strongly believe the performance will revive and boost earnings following the recovery in its key markets, structural strength by focusing on regional diversification (eastern region) and cost tightening measures. The current weakness is temporary (because of combination of weak realisation and escalated costs) and will fade away as the core market demand revives. We have retained our Buy rating on TRCL. At our target price, the stock trades at an EV/EBITDA of 13.5x FY2E earnings. Volume growth continues: Volume jumped 22% YoY to 2.61mnmt following strong demand in the eastern region and recovery in TRCL s core market (TN)in1QFY19. Despite this, the realisation dipped only marginally by 1.5% to Rs4,537/tn owing to a judicious sales mix. Cost inflation and limited pass-through impacts EBITDA margin: Energy costs (adjusted to raw material costs) rose ~12% YoY on account of high pet-coke usage (65% in 1QFY19). Logistics costs were up ~21% YoY to Rs1,123/tn because of higher diesel prices and higher lead distance (to be reverted back to normal). However other expenditure was controlled at Rs1.57bn, despite strong volume jump and higher promotional expenses (in the eastern region). Despite this, operating costs rose % YoY to Rs3,79/tn. However, limited pass-through of cost inflation because of demand weakness in key market (TN) led to compression in EBITDA margin by 771ps YoY to 2.5%. Maintain our estimates: Despite the weak performance in 1QFY19, we have maintained our earning estimates of Rs33.9/Rs41.5 for FY19/FY2, respectively. This is factoring in the demand revival in key TN market, sustained recovery in Andhra Pradesh, logistic cost savings (truck-loading norm and new grinding units) and strong cost control measures. Outlook: We have valued TRCL at a replacement cost of Rs11.7bn/mt assigned to its operating capacity of 16.6mt (based on the expanded FY2E clinker capacity) and the excess grinding capacity (4mt based on FY2Ecapacity) at Rs1.75bn to arrive at the target price of Rs813 (revised from Rs894 earlier). We have assigned ~5% premium to the operating capacity to arrive at TRCL s fair value. We have retained Buy rating on the stock At our target price, the stock trades at an EV/EBITDA of 13.5x FY2E earnings. NBIE Values your patronage- Vote for The Team in the Asia Money poll 218. Click Here BUY Sector: Cement CMP: Rs679 Target Price: Rs813 Upside: 2% Milind Raginwar Research Analyst milind.raginwar@nirmalbang.com +91-22-6273 8172 Key Data Current Shares O/S (mn) 235.6 Mkt Cap (Rsbn/US$bn) 16.2/2.3 52 Wk H / L (Rs) 879/615 Daily Vol. (3M NSE Avg.) 369,84 Price Performance (%) 1 M 6 M 1 Yr The Ramco Cements (3.4) (7.7) (1.2) Nifty Index 6.2 5.6 13.5 Source: Bloomberg Y/E March (Rsmn) 1QFY19 YoY % QoQ % Net sales 12,199,288 18.6 12,548 (2.8) Operating expenses 9,696. 7,272.8 33.3 9,729.7 (.3) EBITDA 2,53 2,94 (13.8) 2,722 (8.) EBITDA margin (%) 2.5 28.2 (771bps) 21.7 (117bps) Other Income 49 52 (6.1) 19 (74.1) Interest costs 114 155 (26.) 5 9.4 Depreciation 735 72 2. 754 (2.6) PBT 1,73 2,82 (18.2) 2,53 (17.) Non-recurring items - - - (288) - PBT (after non-recurring items) 1,73 2,82 (18.2) 1,765 (3.5) Tax 453 524 (13.5) 679 (33.2) Reported PAT 1,25 1,558 (19.8) 1,86 15.1 Adjusted PAT 1,25 1,558 (19.8) 1,374 (9.1) NPM (%).2 15.1 (49bps) 11. (71bps) Adjusted EPS (Rs) 5.3 6.5 (19.) 5.8 (9.1) Source: Company, Nirmal Bang Research
Exhibit 1: Operational details (Rs) 1QFY19 YoY % QoQ % 1QFY19E Deviation % Volume (mnmt) 2.61 2.15 21.6 2.74 (4.5) 2.47 5.7 Cement realisation (net of freight) (Rs/mt) 4,537 4,67 (1.5) 4,567 (.7) 4,467 1.6 Operating costs (Rs/mt) 3,79 3,383 9.7 3,556 4.3 3,481 6.6 EBITDA (Rs/mt) 919 1,34 (29.5) 958 (4.1) 974 (5.6) Source: Company, Nirmal Bang Research Exhibit 2: Detailed quarterly financials (Rsmn) 1QFY19 YoY % QoQ % 1QFY19E Deviation % Net sales 12,199,288 18.6 12,548 (2.8) 11,183 9.1 Expenditure Change in stock (234.4) (27.8) 12.8 31.6 (841.8) (55.) 326.2 Raw material costs 2,42 1,688 21. 2,185 (6.5) 1,953 4.5 Purchased products - - - - - - - Power & fuel expenses 2,563 1,681 52.4 2,176 17.8 1,978 29.6 Freight costs 2,935 1,999 46.8 2,912.8 2,547 15.2 Employee costs 82 749 9.4 738 11.1 725 13. Other exp 1,571 1,363 15.3 1,687 (6.9) 1,458 7.7 Total operating expenses 9,696 7,273 33.3 9,73 (.3) 8,66 12.7 EBITDA 2,53 2,94 (13.8) 2,722 (8.) 2,58 (.2) EBITDA margin (%) 2.5 28.2 (771bps) 21.7 (117bps) 22.4 (191bps) Other income 49 52 (6.1) 19 (74.1) 55 (.5) Interest costs 114 155 (26.) 5 9.4 2 12.2 Depreciation 735 72 2. 754 (2.6) 745 (1.4) PBT 1,73 2,82 (18.2) 2,53 (17.) 1,716 (.7) Non-recurring items - - - (288) (.) - - PBT (after non-recurring items) 1,73 2,82 (18.2) 1,765 (3.5) 1,716 (.7) Tax 453 524 (13.5) 679 (33.2) 429 5.7 Tax rate (%) 27 25 6bps 38 (31bps) 25 6bps Reported PAT 1,25 1,558 (19.8) 1,86 15.1 1,287 (2.9) Adjusted PAT 1,25 1,558 (19.8) 1,374 (9.1) 1,287 (2.9) NPM (%).2 15.1 (49bps) 11. (71bps) 11.5 (126bps) Adjusted EPS (Rs) 5.3 6.5 (19.) 5.8 (9.1) 5.5 (2.9) Source: Company, Nirmal Bang Research Exhibit 3: Trend in operating costs/mt Operating costs/mt(rs) 1QFY19 YoY % QoQ % Consumption of raw material 786 741 83 749 688 722 914 8 692.5 (14.6) Power and fuel costs 623 591 645 68 782 82 751 795 98 25.4 23.3 Freight costs 853 879 891 91 93 979 995 1,64 1,123 2.7 5.5 Total costs per mt 3,196 3,224 3,362 3,277 3,383 3,573 3,641 3,556 3,79 9.7 4.3 Source: Company, Nirmal Bang Research 2 The Ramco Cements
Exhibit 4: Estimates Maintained Old estimates New estimates Change (%) (Rsmn) FY19E FY2E FY19E FY2E FY19E FY2E Net sales 51,5 56,878 51,5 56,878 - - Operating profit 12,777 14,918 12,777 14,918 - - Net profit 7,98 9,788 7,98 9,788 - - EPS (Rs) 33.9 41.5 33.9 41.5 - - Target price (Rs) 894 813 Rating BUY BUY Source: Company, Nirmal Bang Research 3 The Ramco Cements
4QFY15 1QFY19 1QFY19 4QFY15 1QFY19 1QFY19 Exhibit 5: New regional expansion boosts volume 3. 2.74 2.614 6 2.5 2.9 2.8 2.3 1.99 2.28 2.15 2.15 2.27 5 2. 1.81 1.71 1.63 4 1.5 3 1. 2.5. (.5) () (1.) (2) Exhibit 6: Realisation pressure continues due to lack of support from core markets 5, 2 4,75 4,5 4,25 4, 3,75 3,5 15 5 (5) () (15) Volumes (mn mt) Realisations (Rs/mt) Source: Company, Nirmal Bang Research Exhibit 7: Performance impacted because of limited cost pass-through Source: Company, Nirmal Bang Research Exhibit 8: Cost escalation aided by high energy and logistics costs (Rsmn) 1,7 1,5 1,3 1, 9 7 5 3 1,529 1,554 1,486 1,493 1,417 1,431 1,288 1,34 1,319 1,145 936 958 919 3,8 15 3,7 3,6 3,5 5 3,4 3,3 (5) 3,2 () 3, 3, (15) 2,9 (2) 2,8 (25) EBITDA/mt Operating costs/mt (Rs) Source: Company, Nirmal Bang Research Exhibit 9: Higher lead distance pushes up logistics costs 1,2 2 1, 15 8 5 6 4 (5) () 2 (15) - (2) Source: Company, Nirmal Bang Research Exhibit : Higher fuel cost inflation pushes up energy expenses 1, 4 9 3 8 7 2 6 5 4 () 3 2 (2) (3) - (4) Freight costs/mt (Rs) Power & Fuel costs/mt (Rs) Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research 4 The Ramco Cements
Apr-8 Aug-8 Jan-9 Jun-9 Nov-9 Mar- Aug- Jan-11 Jun-11 Oct-11 Mar-12 Aug-12 Jan-13 May-13 Oct-13 Mar-14 Aug-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Dec-16 May-17 Oct-17 Mar-18 Jul-18 Apr-8 Aug-8 Jan-9 Jun-9 Nov-9 Mar- Aug- Jan-11 Jun-11 Oct-11 Mar-12 Aug-12 Jan-13 May-13 Oct-13 Mar-14 Aug-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Dec-16 May-17 Oct-17 Mar-18 Jul-18 Exhibit 11: Valuation charts EV/EBITDA (Rs) 1, 8 6 4 EV/tn (Rs) 8 6 4 2 2 Price 8 12 14 Source: Company, Nirmal Bang Research Price $8 $ $12 $14 $16 Source: Company, Nirmal Bang Research 5 The Ramco Cements
Financials Exhibit 12: Income statement Year Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Net sales 35,517 39,32 44,64 51,5 56,878 Growth (%) (1.2).7 12.1 15.8 11.5 Operating expenses (25,17) (27,731) (33,142) (38,228) (41,96) EBITDA,51 11,571,922 12,777 14,918 Growth (%) 58.6.2 (5.6) 17. 16.8 Depreciation & amortisation (3,48) (2,655) (2,922) (2,73) (2,575) EBIT 8,552 9,537 8,366,915 13,222 Other income 1, 621 366 84 879 Interest paid (1,819) (1,35) (592) (584) (573) Extraordinary/exceptional items PBT 6,734 8,51 7,774,331 12,649 Tax (1,312) (2,9) (2,29) (2,351) (2,861) Effective tax rate (%) (19.5) (23.6) (29.5) (22.8) (22.6) Net profit 5,422 6,493 5,484 7,98 9,788 Minority interest - - - - - Reported net profit 5,422 6,493 5,484 7,98 9,788 Non-recurring items - - - - - Adjusted net profit 5,422 6,493 5,484 7,98 9,788 Growth (%) 123.7 19.8 (15.5) 45.5 22.6 Source: Company, Nirmal Bang Research Exhibit 14: Balance sheet Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Cash & bank balances 98 1,181 1,127 1,234 1,342 Other current assets 13,838 14,392 11,789 2,876 25,973 Investments 1,442 1,483 2,168 2,172 2,173 Net fixed assets 52,116 52,395 54,927 51,223 57,185 Goodwill & intangible assets 638 638 827 1,67 1,37 Other non-current assets - - - - - Total assets 68,942 7,88 7,836 76,572 87,978 Current liabilities 13,998 14,731 13,18 12,63 13,384 Borrowings 16,854 11,496 9,989 8,629 9,829 Other non-current liabilities 7,155 7,281 7,597 8,97 8,597 Total liabilities 38,7 33,59 3,766 29,356 31,8 Share capital 238 238 236 236 236 Reserves & surplus 3,697 36,341 39,835 46,98 55,932 Shareholders' funds 3,935 36,579 4,7 47,215 56,168 Minority interest - - - - - Total equity & liabilities 68,942 7,88 7,836 76,572 87,978 Source: Company, Nirmal Bang Research Exhibit 13: Cash flow Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Pre-tax profit 6,734 8,51 7,774,331 12,649 Depreciation 3,89 2,347 4,91 4,158 4,221 Chg in working capital 447 2 (1,55) (9,913) (4,853) Total tax paid (1,269) (1,882) 22 (1,575) (1,851) Other operating activities - - - - - Operating CF 9, 9,68,337 3,2,166 Capital expenditure (2,344) (2,625) (6,812) (694) (,423) Chg in investments 24 (42) (684) (4) (1) Other investment activities - - - - - Investing CF (2,319) (2,667) (7,496) (698) (,424) FCF 6,681 6,41 2,841 2,33 (257) Equity raised/(repaid) - - (3) - - Debt raised/(repaid) (5,235) (5,358) (1,57) (1,36) 1,2 Dividend (incl. tax) (1,395) (757) (231) (835) (835) Other financing activities (2) (13) (1,155) - - Financing CF (6,65) (6,128) (2,895) (2,195) 365 Net chg. in cash & bank bal. 31 273 (54) 8 7 Closing cash & bank bal. 98 1,181 1,127 1,234 1,342 Source: Company, Nirmal Bang Research Exhibit 15: Key ratios Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Profitability and return ratios (%) EBITDAM 29.6 29.4 24.8 25.1 26.2 EBITM 24.1 24.3 19. 21.4 23.2 NPM 15.3 16.5 12.4 15.6 17.2 RoE 18.8 19.2 14.3 18.3 18.9 RoCE 15.4 17.3 14.8 18. 19.1 RoIC 13. 13.8 11. 14.7 15.5 Per share data (Rs) O/s shares 238.1 238.1 236.9 235.6 235.6 EPS 22.8 27.3 23.2 33.9 41.5 FDEPS 22.8 27.3 23.2 33.9 41.5 CEPS 35.6 38.4 35.5 45.3 52.5 BV 129.9 153.6 169.2 2.4 238.4 DPS 4.5 3. 3. 3. 3. Valuation ratios (x) PE 29.8 24.9 29.3 2. 16.3 P/BV 5.2 4.4 4. 3.4 2.8 EV/EBITDA 16.9 14.9 15.6 13.2 11.4 EV/Sales 5. 4.4 3.9 3.3 3. Other key ratios D/E (x).5.3.2.2.2 DSO (days) 49 52 37 46 47 DuPont analysis - RoE NPM (%) 15.3 16.5 12.4 15.6 17.2 Asset turnover (x).5.6.6.7.7 Leverage factor (x) 2.4 2.1 1.8 1.7 1.6 RoE (%) 18.8 19.2 14.3 18.3 18.9 Source: Company, Nirmal Bang Research 6 The Ramco Cements
Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Rating track Date Rating Market price (Rs) Target price (Rs) 26 March 218 Buy 796 887 24 May 218 Buy 798 894 6 June 218 Buy 746 894 3 August 218 Buy 679 813 Rating track graph 9 85 8 75 7 65 6 55 5 Not Covered Covered 7 The Ramco Cements
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