Ramco Cements - Q1FY16 Result Update - Bright star in the dark night :: Centrum

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

--> Rating: Buy; Target Price: Rs430; CMP: Rs360; Upside: 19%



Bright star in the dark night



We maintain BUY on Ramco Cements (TRCL) with a higher TP of Rs430.
TRCL delivered another strong quarterly performance (EBITDA/ PAT
growth of 63%/ 169% YoY) led by sticky supply discipline in south,
lower input costs and increase in plant efficiency which more than
offset of lower sales volume.  Persisting supply discipline in south,
lower input costs outlook and expected demand improvement from 2HFY16
should drive TRCL’s 28% EBITDA CAGR during FY15-17E. Amid lower capex
during FY16/17E, strong cash flow generation should lead to debt
reduction.

$ Sticky supply discipline drives strong profitability: Cement sales
volume declined 15% YoY on persisting weak demand in south. However,
pricing discipline remained sticky driving up NSR by 18% YoY and
boosting EBITDA/ PAT growth. NSR declined 2% QoQ led by timely onset
of monsoon. Wind power (3% of top-line) sales volume halved YoY led by
frequent backing down of generators and heavy rains. Reported EBIDTA
came in 5% lower than our est driven by 2% lower than NSR est.

$ All round operating cost efficiencies: TRCL’s opex per MT rose 1%
QoQ largely led by ~Rs100 per MT provisioning towards District Mineral
Foundation (DMF) Fund. Adjusted for the same, total opex declined 1%
QoQ as input costs per MT moderated 2% QoQ (lower coal prices and
stable plant efficiency).  Fixed costs per MT rose a modest 2% QoQ as
against 4% lower volume QoQ. On YoY basis, opex per MT is higher on
account of 15% volume decline and lower utilisation at recently
commissioned Vizag grinding unit (operating at ~15% utilisation as
grid power supply is awaited and railway siding connectivity is
pending- both expected during FY16E). TRCL expects stabilising of this
grinding unit will lower its lead distance in Orissa and coastal
Andhra Pradesh region.

$ Lower capex; debt reduction to gain pace:  Construction work for
12MW out of 18MW of CPP is done and is awaiting some clearances from
the Government.  All 18MW will start production in FY16E thereby
boosting surplus power availability which TRCL plans to monetise. TRCL
is also working towards kiln replacement at Jayantipuram (Andhra
Pradesh) in FY16E at a capex of Rs1 bn. This will augment its clinker/
grinding capacities by 0.4/ 0.5 mn MT each. TRCL is targeting total
capex of ~Rs2.5 bn in FY16E and no major capex in FY17E. TRCL has paid
off Rs1.5 bn druing Q1FY16. It is further targeting to lower debt as
well as to refinance its Rs3-5 bn of high cost of debt by replacing
them with low cost NCDs.

$ Valuation & Risks: We maintain BUY on TRCL on account of its strong
profit outlook led by ensuing pricing discipline and expected demand
improvement from 2HFY16E. Better cash flow should reduce debt on
books. We cut our FY16E/17E EBITDA by 6% each to factor in lower NSR
growth in Q1FY16 vs our estimates. We value the company at 8.5x its
Jun’17E EBITDA leading to TP of Rs430 (earlier Rs380 on 8.5x its
Mar’17E EBITDA). Key downside risks are disruption in pricing
discipline, continued weak demand beyond 1HFY16 and sharp cost rises.



Thanks & Regards

--
--