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RESULTS REVIEW 1QFY17

04 AUG 2016

Ramco Cements
SELL
INDUSTRY
CEMENT
CMP (as on 03 Aug 2016) Rs 533
Target Price
Rs 447
Nifty

8,545

Sensex

27,698

KEY STOCK DATA


Bloomberg

TRCL IN

No. of Shares (mn)

238

MCap (Rs bn) / ($ mn)

127/1,895

6m avg traded value (Rs mn)

132

STOCK PERFORMANCE (%)

Another solid quarter


Ramco reported yet another industry leading quarter
with EBITDA/t (ex other op. income) at Rs 1,325
(14.2% YoY, -10.5% QoQ). Strong volume growth at
14.5% (2.08 mT, ~60% utilization on our capacity
estimates) was likely driven by higher despatches in
AP/East, but was coupled with a decline in
realizations (Rs 4,542, -8.9% YoY). Revenues/
realisations are not comparable QoQ as
4QFY16/FY16 nos are not yet restated to comply
with IndAS requirements.

Promoters

42.30

FIs & Local MFs

24.88

Inline with cement industry, Ramco has hugely


benefited from cheaper energy costs, with pet-coke
providing a handy uplift to the numbers. However,
petcoke prices are now ~75% higher from the lows of
January 2016, and are likely to get reflected in
subsequent quarters. At 11.8/10.4x FY17/18
EV/EBITDA and US$160/t, the risks are very much to
the downside. We maintain SELL with a TP of Rs
447/sh (9.0x FY18 EV/EBITDA, US$135/t).

FIIs

15.91

Financial Summary (Standalone)

Public & Others

16.91

(Rsmn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E(x)
EV/EBITDA(x)
RoE (%)

52 Week high / low

Rs 595 / 291
3M

6M

12M

Absolute (%)

13.0

40.1

49.2

Relative (%)

3.2

25.8

50.9

SHAREHOLDING PATTERN (%)

Source : BSE

Ankur Kulshrestha
ankur.kulshrestha@hdfcsec.com
+91-22-6171 7346
Sarfaraz Singh
sarfaraz.singh@hdfcsec.com
+91-22-6171 7331

1QFY17
9,721
3,042
1,559
6.55

1QFY16
9,474
2,538
992
4.17

Source: Company, HDFC sec Inst Research

YoY(%)
2.6
19.9
57.1
57.1

4QFY16
10,149
3,454
2,044
8.59

Key highlights

Operating costs remained largely flat QoQ (-15.9%

YoY). Energy costs (Rs 623/t, -22.5% YoY, flat


QoQ) and freight costs (Rs 1,026/t, -16.1% YoY, 1.4% QoQ) were largely rangebound. Despite an
~85% jump in generation from windmills, other
operating income declined ~33% YoY (Under
IndAS, windmill external profits are clubbed under
other operational income). Debt reduction by Rs
3.12bn on account of cash flows and working
capital management is a key positive.

Near term outlook: Profitability is likely to come

under pressure given rising energy costs.


Stabilisation in prices in AP/Telengana (at least so
far) should help recover some of the lost ground in
pricing and offset the pains from higher energy
costs. We remain optimistic on Ramcos ability to
repeat its 1QFY17 performance and our numbers
reflect the same.

QoQ(%)
(4.2)
(11.9)
(23.7)
(23.7)

FY14
36,321
6,192
1,376
5.8
95.6
25.9
5.7

FY15
35,939
7,920
2,424
10.2
54.3
20.0
9.5

FY16
35,872
11,414
5,821
24.5
22.6
13.4
20.3

FY17E
39,196
12,345
5,961
25.0
22.1
11.8
17.9

FY18E
42,705
13,403
6,920
29.1
19.0
10.4
17.9

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Quarterly Financials Snapshot


Strong growth in EBITDA
(19.9% YoY) fueled by (1)
Strong volumes growth,
helped by weak base (14.5%
YoY) and (2) Sharp reduction
in operating costs led by P&F
(-22.5 YoY) and freight costs
(-16.1% YoY)

(Rs mn)
Net Sales
Other operating income
Power & Fuel
Freight Expenses
RM Costs
Employee costs
Other Operating Expenses
Changes in stock
EBITDA
Other Income
Interest Cost
Depreciation
PBT
Tax
RPAT
E/o(adj for tax)
APAT

1QFY17
9,721
292
1,293
2,130
1,259
707
1,233
57
3,042
19
291
663
2,106
547
1,559
1,559

1QFY16
9,474
433
1,457
2,218
1,278
623
1,196
165
2,538
18
493
667
1,396
403
992
992

YoY(%)
2.6
(11.3)
(4.0)
(1.5)
3.1
19.9

57.1
57.1

4QFY16
10,149
361
1,302
2,175
1,298
653
1,287
(19)
3,454
28
444
652
2,386
342
2,044
(175)
1,868

QoQ(%)
(4.2)

4QFY16
2.09
4,686
623
1,041
621
312
607
1,481
3,205

QoQ(%)
(0.6)
(3.1)
(0.1)
(1.4)
(2.4)
9.0
2.5
(10.5)
0.4

(0.7)
(2.1)
(3.0)
(4.1)
(11.9)

(23.7)
(16.5)

Source: Company, HDFC sec Inst Research


Revenues/other operating expenses not comparable QoQ as 4QFY16 restated numbers are not available.

Per Tonne Analysis


Operating costs remained flat
QoQ

Per tonne data


Volumes (mT)
Realisations (Rs/T)
P&F costs (Rs/T)
Freight costs (Rs/T)
RM costs (Rs/T)
Employee costs (Rs/T)
Other costs (Rs/T)
Cement EBITDA/T (Rs/t, ex Other op. inc.)
Total costs

1QFY17
2.08
4,542
623
1,026
606
340
622
1,325
3,217

1QFY16
1.81
4,987
804
1,224
705
344
751
1,161
3,826

YoY(%)
14.5
(8.9)
(22.5)
(16.1)
(14.0)
(0.9)
(17.2)
14.2
(15.9)

Source: Company, HDFC sec Inst Research


Realisations/other operating expenses not comparable QoQ as 4QFY16 restated numbers are not available.

Page | 2

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Valuations continue to remain


expensive

Peer valuations
Company

MCap
(Rs bn)

CMP
(Rs)

TP
(Rs)

Reco.

UltraTech Cement
Shree Cement
Ambuja Cement1
ACC1
Ramco Cements
Birla Corp
Orient Cement
Sanghi Industries

1,009.6
584.6
407.4
314.0
127.7
42.3
34.0
14.7

3,668
16,780
263
1,669
533
549
166
67

2,973
13,140
190
1,224
447
550
180
83

NEU
NEU
SELL
SELL
SELL
NEU
NEU
BUY

EV/EBITDA (x)
FY17E FY18E
16.7
14.1
21.9
16.8
16.2
11.6
16.2
10.8
11.8
10.4
8.0
5.1
17.0
7.0
6.5
4.1

P/E (x)
FY17E FY18E
32.7
26.9
56.5
39.3
29.5
21.3
35.1
21.0
22.1
19.0
12.8
9.2
119.0
10.6
12.1
6.4

EV/T (US$)
FY17E FY18E
220
213
265
245
174
166
131
128
160
147
57
48
80
76
70
62

FY17E
7.6
5,042
773
580
1,144
1,521

FY18E
8.2
5,093
769
589
1,147
1,535

Note: Prices as of Aug 3, 2016, close. US$: INR = 67.0


1
December YE

Key Assumptions
We retain our estimates of
strong profitability

Year Ending March


Cement volumes (mn t)
Realizations (Rs/t)
P&F cost/t (Rs/t)
Raw material cost/t (Rs/t)
Freight cost/t (Rs/t)
EBITDA/t

FY14
8.6
4,073
969
647
1,085
595

FY15
7.7
4,542
1,015
687
1,234
864

FY16
7.2
4,896
814
571
1,094
1,451

Source: Company, HDFC sec Inst Research

Page | 3

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Strong volume growth continues

Realisations suffered due to lower pricing in AP/TG

Sales volume (mT)

YoY (%)

mnT

2.5

Realisations (Rs/T)

2.0

40.0

6,000

30.0

5,000

20.0
1.5

10.0
-

1.0

(10.0)
0.5

(20.0)

Freight cost/T
Oth. Exp/T

20.0
-

2,000

(20.0)

1,000
-

3QFY10
1QFY11
3QFY11
1QFY12
3QFY12
1QFY13
3QFY13
1QFY14
3QFY14
1QFY15
3QFY15
1QFY16
3QFY16
1QFY17

(40.0)

Industry leading EBITDA/t at Rs 1,325


EBITDA/T (Rs)
1,800

Rs/T

YoY (%)
%

350.0

1,600

300.0

1,400

250.0

1,200

200.0

1,000

150.0

800

100.0

600

50.0

400

200

(50.0)

(100.0)

3QFY10
1QFY11
3QFY11
1QFY12
3QFY12
1QFY13
3QFY13
1QFY14
3QFY14
1QFY15
3QFY15
1QFY16
3QFY16
1QFY17

1QFY17

3QFY16

1QFY16

3QFY15

1QFY15

3QFY14

1QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

40.0

RM cost/T

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-

1QFY11

60.0

Source: Company, HDFC sec Inst Research

Energy costs continue to drive opex lower

Source: Company, HDFC sec Inst Research

3,000

1QFY17

3QFY16

1QFY16

3QFY15

1QFY15

3QFY14

1QFY14

3QFY13

1QFY13

3QFY12

1QFY12

3QFY11

1QFY11

Source: Company, HDFC sec Inst Research

P&F Costs/T
Empl. Cost/T

YoY (%)

Rs/T

4,000

(30.0)

3QFY10

0.0

3QFY10

Industry leading EBITDA/t at


Rs 1,325

Source: Company, HDFC sec Inst Research

Page | 4

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Income Statement
Year ending March (Rs mn)

Balance Sheet
FY14

FY15

FY16

FY17E

FY18E

FY14

FY15

FY16

FY17E

FY18E

Net sales

36,321

35,939

35,872

39,196

42,705

SOURCES OF FUNDS

Growth %
Material Expenses

(4.1)
18,466

(1.1)
16,860

(0.2)
13,959

9.3
15,310

9.0
16,734

Share Capital
Reserves

238
24,583

238
26,214

238
30,688

238
35,598

238
41,298

Employee Expenses
SG&A Expenses
Other operating expenses

2,218
10,291
230

2,287
9,889
281

2,592
8,558
258

2,801
9,332
258

3,093
10,105
258

Total Shareholders Funds


Minority Interest
Long Term Debt

24,821
15,204

26,452
17,100

30,926
10,586

35,836
4,824

41,536
4,824

5,116

6,622

10,504

11,495

12,515

Short Term Debt

14,085

10,019

11,470

16,403

13,110

14.1

18.4

29.3

29.3

29.3

Total Debt

29,288

27,119

22,056

21,226

17,933

Other operating income


EBITDA

1,076
6,192

1,298
7,920

910
11,414

850
12,345

889
13,403

7,374
4,241

8,271
4,448

8,521
5,375

8,521
5,375

8,521
5,375

EBITDA %
EBITDA Growth %
Depreciation

17.0
(40.4)
3,063

22.0
27.9
2,499

31.8
44.1
2,670

31.5
8.2
2,699

31.4
8.6
2,441

65,723

66,289

66,877

70,958

73,365

46,415

48,755

47,585

46,386

45,445

EBIT
Other Income (including EO
items)
Interest

3,129

5,422

8,744

9,646

10,962

3,857

2,747

3,053

2,553

2,053

295

81

89

94

98

1,881

1,938

1,802

1,224

1,175

PBT
Tax
RPAT

1,543
166
1,376

3,564
1,141
2,424

7,030
1,448
5,583

8,515
2,555
5,961

9,886
2,966
6,920

2,173
3,084
55,529

2,385
3,646
57,533

3,654
2,939
57,231

3,654
2,939
55,532

3,654
2,939
54,091

Inventories

6,855

5,206

5,490

6,155

6,046

(238)

Debtors
Other Current Assets

3,040
2,802

3,802
2,154

4,685
2,370

4,435
1,938

3,699
1,938

APAT
APAT Growth (%)
Adjusted EPS (Rs.)

1,376
(65.9)
5.8

2,424
76.1
10.2

5,821
140.2
24.5

5,961
2.4
25.0

6,920
16.1
29.1

1,108
13,804
1,877

1,792
12,955
2,198

908
13,453
2,091

6,710
19,239
2,530

10,615
22,298
1,741

EPS Growth (%)

(65.9)

76.1

140.2

2.4

16.1

1,086

2,216

1,283

1,283

1,283

2,962
10,842
65,723

4,414
8,541
66,289

3,374
10,079
66,877

3,813
15,426
70,958

3,024
19,274
73,365

Operating profits
Operating Profit Margin (%)

EO (Loss) / Profit (Net Of Tax)

Source: Company, HDFC sec Inst Research, Standalone numbers displayed

Year ending March (Rs mn)

Deferred Taxes
Long Term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments
LT Loans and Advances
Total Non-current Assets

Cash & Equivalents


Total Current Assets
Creditors
Other Current Liabilities &
Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF FUNDS

Source: Company, HDFC sec Inst Research

Page | 5

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Cash Flow

Key Ratios

Year ending March (Rs mn)

FY14

FY15

FY16

FY17E

FY18E

Reported PBT

1,543

3,564

7,030

8,515

9,886

PROFITABILITY (%)

Non-operating & EO items


Interest expenses

(85)
1,881

816
1,938

161
1,802

(94)
1,224

(98)
1,175

EBITDA Margin
APAT Margin

Depreciation
Working Capital Change
Tax paid

3,063
(473)
(166)

2,499
1,208
(1,141)

2,670
(1,274)
(1,448)

2,699
23
(2,555)

2,441
56
(2,966)

RoE
Core RoCE
RoCE

OPERATING CASH FLOW ( a )

5,762

8,884

8,943

9,814

10,494

EFFICIENCY

(4,481)

(4,290)

(1,806)

(1,000)

(1,000)

Tax Rate (%)

1,281
(177)

4,594
(724)

7,137
(95)

8,814
-

9,494
-

Non-operating Income
INVESTING CASH FLOW ( b )
Debt Issuance/(Repaid)

295
(4,363)
2,618

81
(4,934)
(2,169)

89
(1,812)
(5,063)

94
(906)
(830)

Interest expenses

(1,881)

(1,938)

(1,802)

FCFE
Share Capital Issuance
Dividend

(5,099)
(279)

(826)
(430)

457

NET CASH FLOW (a+b+c)


EO Items/Others
Closing Cash & Equivalents

Capex
Free cash flow (FCF)
Investments

FINANCING CASH FLOW ( c )

FY14

FY15

FY16

FY17E

FY18E

17.0
3.8

22.0
6.7

31.8
16.2

31.5
15.2

31.4
16.2

5.7
8.0
7.9

9.5
9.1
9.0

20.3
16.8
16.5

17.9
17.5
15.9

17.9
21.3
17.0

10.8

32.0

20.6

33.0

33.0

Asset Turnover (x)


Inventory (days)

0.5
89

0.5
89

0.5
98

0.6
95

0.6
91

98
(902)
(3,293)

Debtors (days)
Payables (days)
Cash Conversion Cycle (days)

27
23
92

35
30
94

43
39
102

42
38
100

35
32
94

(1,224)

(1,175)

Debt/EBITDA (x)

4.5

3.6

2.2

1.8

1.5

5,053
(839)

1,148
(1,051)

3,566
(1,220)

Net D/E
Interest Coverage
PER SHARE DATA

1.16
2.7

1.00
3.4

0.68
5.8

0.41
9.4

0.18
10.7

(4,537)

(7,704)

(3,105)

(5,687)

EPS (Rs/sh)

5.8

10.2

24.5

25.0

29.1

1,857
1,955

(587)
(1,271)

(574)
311

5,803

3,905

CEPS (Rs/sh)
DPS (Rs/sh)

18.7
1.0

20.7
1.5

34.7
3.0

36.4
3.8

39.3
4.4

1,108

1,792

907

6,710

10,615

BV (Rs/sh)
VALUATION
P/E

104.3

111.1

129.9

150.6

174.5

95.6

54.3

22.6

22.1

19.0

5.3

5.0

4.3

3.7

3.2

25.9
3.7%
0.8%
(4.3%)
0.2

20.0
5.5%
2.9%
1.4%
0.3

13.4
5.7%
4.5%
7.9%
0.5

11.8
6.4%
5.8%
6.6%
0.7

10.4
7.2%
6.5%
9.0%
0.8

Source: Company, HDFC sec Inst Research

P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/Market Cap (%)
Dividend Yield (%)

Source: Company, HDFC sec Inst Research

Page | 6

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

RECOMMENDATION HISTORY
Ramco Cements

Date
6-Aug-15
9-Nov-15
7-Jan-16
10-Feb-16
8-Apr-16
23-May-16
8-Jul-16
4-Aug-16

TP

560
510
460
410
360
310

CMP
364
367
398
374
443
493
578
533

Reco
SELL
NEU
SELL
NEU
SELL
NEU
SELL
SELL

Target
299
342
352
352
352
447
447
447

Rating Definitions
Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

260

BUY

: Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL

: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 7

RAMCO CEMENTS : RESULTS REVIEW 1QFY17

Disclosure:
We, Ankur Kulshrestha, PGDBM & Sarfaraz Singh, PGDM authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
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for, any company mentioned in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any
action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the
dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC 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.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

HDFC securities
Institutional Equities
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