Hold The Ramco Cements; target of Rs 735: Prabhudas Lilladher

Prabhudas Lilladher's research report on The Ramco Cements

The Ramco Cements (TRCL) reported Q1FY19 significantly below our expectation with miss across the fronts. Steep increase in energy and freight cost pulled down margins by ~29% YoY, diluting the benefit of high scale. Weakness in realisations further aggravated the slide in margins. Price hike undertaken in last couple of months would help TRCL to expand the margins from Q1 levels. However, given the high price levels in Tamil Nadu and Kerala and high competitive intensity in AP and Telangana, price hikes would fail to outpace the increase in costs. In this backdrop, we cut our earnings estimates for FY19e/FY20e estimate by 23%/15%.

Outlook

Cement volumes grew 21.6% YoY at 2.61mn (PLe:2.65mn) tonnes (t) due to sand mining issues in Tamil Nadu and low base. Impacted by intense competition, Realisations fell 1.5%/Rs70/t YoY (↓0.8%/Rs35/t QoQ) to Rs4,535/t below our estimate of Rs4,585/t. Impacted by 25%/20% increase in energy/freight cost, total cost/t rose 8%/Rs275 YoY to Rs3,710 (PLe:Rs3,640). Marred by higher than expected costs and weaker realisations, EBITDA/t fell short of our estimate by 10% at Rs828 (PLe:Rs945), down 29.4%. EBITDA fell 14% YoY to Rs2.16bn (PLe:Rs2.46bn). Hit by 28% fall in income from sale of wind power and higher tax rate, PAT fell 20% YoY to Rs1.25bn (PLe:Rs1.39bn).