May 24, 2018 ICICI Securities Ltd | Retail Equity Research Result Update Healthy EBITDA/t despite input pressure… Ramco reported a mixed set of Q4FY18 numbers. Revenues increased 22.3% YoY to | 1,254.8 crore (vs. I-direct estimate of | 1,206.5 crore) led by 20.2% YoY increase in volumes to 2.7 MT (vs. I-direct estimate of 2.6 MT) due to higher sales in eastern region. Further, realisation increased 1.8% YoY to | 4,586 (vs. I-direct estimate of | 4,710) EBITDA/t declined 16.4% YoY to | 995/t (vs. I-direct estimate of | 1,098/t) mainly led by 30.7% YoY increase in power cost/t and 12.6% YoY increase in freight cost/t The company has reduced its debt by | 310 crore and recommended a dividend of | 3/share in FY18. The company plans to add 1.5 MT clinker capacity at Andhra Pradesh for | 680 crore. This expansion is in addition to 3 MT capacity expansion announced by the company previously Operating markets key beneficiary of increased infra spends… The pick-up in road tendering activity, improved sand availability in the company’s operating markets and healthy demand from government’s low cost housing programme are expected to be key drivers of cement demand. As a result, we expect demand (15 MT) to outpace supply (7 MT) positively impacting utilisation levels. Consequently, we expect Ramco’s operating markets to register growth of 7-8% over the next three to four years. Capacity expansion to further drive growth… The company has over the years penetrated the West Bengal and Odisha market. Ramco is planning to further penetrate in the east through capacity expansion. Of the 4.5 MT capacity expansion planned by the company, 2 MT will be in the east (1 MT each in West Bengal, Odisha) while 2.5 MT will be set up in the south (in Andhra Pradesh). The capacity expansion in the east will enable the company to remove capacity constraint and also increase its market share. Apart from expansion in the east, the capacity expansion in AP (south) will enable it to tap the growing opportunity of this market (that is expected to grow at 14% CAGR in the next two to three years). Healthy cash flow generation to keep balance sheet light! During the downturn in the south in FY10-15, efficient management of cash flows has enabled the company to reduce debt-equity from 1.6x to 1.0x in FY15 and further to 0.3x in FY18. Going forward, we believe the company’s robust cash flow generation (~| 2,500 crore in FY18-20E) will not only enable to fund its capex through internal accruals but also maintain its debt- equity at 0.3x. Better sand availability, improving margins key positives; maintain BUY Better sand availability in Tamil Nadu, one of the key markets of Ramco Cement (~60% of capacity share), is expected to be a key contributor to volume growth in coming years. This coupled with higher penetration in the eastern markets will give a tailwind to overall volume growth. Apart from higher penetration in the east, we expect the southern region to witness an upturn mainly led by higher government spending on low cost housing, irrigation and other infra projects. Considering this, coupled with capacity expansion we expect revenues to grow at a CAGR of 14.1% in FY18-20E. In addition, we expect the EBITDA margin to improve from FY18 onwards mainly led by stabilisation of power costs and improvement in freight costs. Considering the capacity expansion, better leverage (D/E: 0.3x) and cost efficiency, Ramco is currently trading at attractive valuations. Hence, we maintain our BUY rating on the stock with an SOTP based target price of | 930 (i.e. 15x FY20E EV/EBITDA). Ramco Cements (RAMCEM) | 795 Rating matrix Rating : Buy Target : | 930 Target Period : 9-12 months Potential Upside : 17% What’s changed? Target Price EPS FY19E EPS FY20E Rating Changed from | 822 to | 930 Changed from | 30.1 to | 29.1 Unchanged Changed from | 37.3 to | 35.0 Quarterly performance Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) Revenue 1,254.8 1,026.2 22.3 1,056.4 18.8 EBITDA 272.2 270.8 0.5 235.3 15.7 EBITDA (%) 21.7 26.4 -470 bps 22.3 -58 bps PAT 108.6 134.5 -19.2 122.7 -11.5 Key financials FY17 FY18 FY19E FY20E Net Sales 3949.5 4406.4 4983.2 5734.0 EBITDA 1176.4 1099.4 1333.2 1587.2 Net Profit 649.3 555.7 684.5 825.1 EPS (|) 27.3 23.5 29.1 35.0 Valuation summary (x) FY17 FY18 FY19E FY20E P/E 29.0 33.7 27.3 22.6 Target P/E 34.1 39.6 32.0 26.5 EV/EBITDA 17.1 18.0 15.2 12.7 EV/Tonne (US$) 203.5 200.3 192.6 159.8 P/BV 5.0 4.6 4.1 3.6 RoNW (%) 17.4 13.7 15.2 16.1 RoCE (%) 12.7 10.4 11.5 12.2 Stock data Particulars Amount (| crore) Market Capitalisation 18855.7 Total Debt (FY18) 1113.2 Cash (FY18) 146.8 EV 19822.1 52 week H/L (|) 879/649 Equity Capital 23.6 Face Value (|) 1.0 Price performance 1M 3M 6M 12M ACC -12.7 -16.7 -22.0 -17.7 UltraTech Cement -3.3 -7.4 -9.6 -11.1 Ramco Cement 1.9 16.3 15.9 20.4 Research Analyst Rashesh Shah [email protected]Devang Bhatt [email protected]
Transcript
May 24, 2018
ICICI Securities Ltd | Retail Equity Research
Result Update
Healthy EBITDA/t despite input pressure…
Ramco reported a mixed set of Q4FY18 numbers. Revenues increased
22.3% YoY to | 1,254.8 crore (vs. I-direct estimate of | 1,206.5 crore) led
by 20.2% YoY increase in volumes to 2.7 MT (vs. I-direct estimate of 2.6
MT) due to higher sales in eastern region. Further, realisation increased
1.8% YoY to | 4,586 (vs. I-direct estimate of | 4,710)
EBITDA/t declined 16.4% YoY to | 995/t (vs. I-direct estimate of
| 1,098/t) mainly led by 30.7% YoY increase in power cost/t and 12.6%
YoY increase in freight cost/t
The company has reduced its debt by | 310 crore and recommended a
dividend of | 3/share in FY18. The company plans to add 1.5 MT clinker
capacity at Andhra Pradesh for | 680 crore. This expansion is in addition
to 3 MT capacity expansion announced by the company previously
Operating markets key beneficiary of increased infra spends…
The pick-up in road tendering activity, improved sand availability in the
company’s operating markets and healthy demand from government’s low
cost housing programme are expected to be key drivers of cement demand.
As a result, we expect demand (15 MT) to outpace supply (7 MT) positively
impacting utilisation levels. Consequently, we expect Ramco’s operating
markets to register growth of 7-8% over the next three to four years.
Capacity expansion to further drive growth…
The company has over the years penetrated the West Bengal and Odisha
market. Ramco is planning to further penetrate in the east through capacity
expansion. Of the 4.5 MT capacity expansion planned by the company, 2 MT
will be in the east (1 MT each in West Bengal, Odisha) while 2.5 MT will be
set up in the south (in Andhra Pradesh). The capacity expansion in the east
will enable the company to remove capacity constraint and also increase its
market share. Apart from expansion in the east, the capacity expansion in AP
(south) will enable it to tap the growing opportunity of this market (that is
expected to grow at 14% CAGR in the next two to three years).
Healthy cash flow generation to keep balance sheet light!
During the downturn in the south in FY10-15, efficient management of cash
flows has enabled the company to reduce debt-equity from 1.6x to 1.0x in
FY15 and further to 0.3x in FY18. Going forward, we believe the company’s
robust cash flow generation (~| 2,500 crore in FY18-20E) will not only
enable to fund its capex through internal accruals but also maintain its debt-
We /I, Rashesh Shah CA, Darpan Thakkar MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
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report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
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loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
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ICICI Securities Ltd | Retail Equity Research Page 12
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.
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