Volumes continue to shrink Ramco Cements ::HDFC Sec, report

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Volumes continue to shrink Ramco Cements (TRCL) reported a weak EBITDA/t (excl other operational income) of Rs ~583/t (vs. est. Rs 814, Rs 653 in 3QFY14). Realizations remained flat (5.7% YoY, -0.4% QoQ) with pricing in South holding on to the increases experienced in 2QFY15. But volumes shrank ~12% YoY to 1.72 mT (implied 55% utilization vs 62% a year ago). Demand remains extremely weak and industry remains hopeful of a pickup. Prices in South increased sharply in December with an improvement of ~Rs50/bag in some markets. Ramco’s profitability is set to improve substantially, offsetting the muted demand and low utilizations. However, despite the high prices, South remains challenging due to extreme price volatility at low volumes. Downgrade to SELL with a TP of Rs 288/sh (7.0x FY17 EV/EBITDA (US$120/t)) on challenging outlook in South. We believe there is a further downside risk to our volume estimates (75/82% clinker utilization in FY16/17)  3QFY15 highlights : EBITDA/t came in at Rs 583/t (vs. est. Rs 814/t, -10.9% YoY, -29.9% QoQ). Volumes shrank by ~12% YoY. Costs remained on an uptrend (8.7%, 6.1% QoQ), driven by higher freight (up 10.2% YoY, 4.2% QoQ) and flat other expenses (despite ~12% QoQ/YoY drop in volumes). Windmill contribution is typically zero in the second half of the year. Reported profits stood at Rs 230mn (-10.2% YoY, -74.4 QoQ).  Outlook and view: We have slashed our volume estimates ~10/6% for FY15/FY16 given the extremely weak demand. EBITDA/PAT stand revised at 12.7/26.3% and 16.0/31.7% respectively for FY15/16. Our numbers imply a ~Rs 1,000 EBITDA/t (ex other op income) for the remainder of FY15, which looks achievable given the current pricing. Commissioning of Vizag GU (1 mTPA, Rs 4.75bn) is now guided for April 2015 and should help Ramco service lucrative coastal markets of AP and Orissa and help it beat the continued downturn in its core markets.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011197