Q4FY23 Review: The Ramco Cements: Strong Q4; guided for industry-leading vol. growth

22 May 2023 , 01:08 PM

The Ramco Cements’ (TRCL) Q4 Ebitda of Rs4.12bn was better than our estimates, led by strong all-round operational performance. Volumes grew 47% YoY to 4.7mnt – above industry peers. Furthermore, mgmt remains confident on demand and has guided for 20% YoY volume growth in FY24. While FY23 net debt remains elevated at Rs43.5bn, it is likely to improve on better operating profits and lower capex intensity. Maintain ADD.

Strong 4Q: 

TRCL’s consolidated Ebitda grew 40% YoY and 45% QoQ to Rs4.13bn — above estimates — driven by all-round strong operating performance. Volumes grew 47% YoY and 32% QoQ to 4.7mt — higher than industry peers — partly aided by recent capacity additions. While Raw Material and Power & Fuel costs (combined) was up 1% QoQ, better absorption of fixed costs on improved operating leverage resulted in 5% QoQ decline in operating costs. Cement realisations fell by 2.3% QoQ and were better than estimates. Resultantly, Ebitda/t was up 10% QoQ; but down 5% YoY to Rs886/t. Capacity utilisations improved to 89% in 4Q vs 65% YoY and 68% QoQ.

Near-term outlook remains strong: 

In Mar’23, TRCL completed RRN expansion of 1.04mt clinker and 1mt cement capacity & dry mortar plant. Further, last leg of guided growth capex – Orissa GU and 2 dry mortar plants – are expected to be commissioned in FY24. Overall capex outlay for FY24 is estimated at Rs8-9bn as projects near completion. Management guided for 20% volume growth in FY24, given new capacity expansions and focus on non-trade segments. Further, management highlighted that benefit of softness in petcoke prices (Spot: US$125/t vs Q4 avg: US$178/t) is likely to aid profitability from Q2FY24.

Focus on deleveraging remains key: 

High capex intensity over last 2 years (Rs35bn+ spent in FY22&23) has resulted in elevated debt positions (Net debt/Ebitda: 3.57x vs 2.88x in FY22). Going ahead, strong operating cashflows on better profitability along with lower capex outlay, is expected to improve net-debt position. Analysts of IIFL Capital Services have raised their Ebitda estimates by 3% each in FY24-25 factoring for strong volume performance; they value the stock at 12.5x 2YF EV/Ebitda with target price raised from Rs775 to Rs865. Maintain ADD.