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Ramco Cem: Volumes slump; margins rise - Views on News from Equitymaster
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Ramco Cem: Volumes slump; margins rise
Jun 3, 2015

The Ramco Cements Ltd (formerly known as Madras Cements Ltd) has announced its financial results for the quarter ended March 2015. The company's sales and net profits have reported a rise of 4% YoY and 273.8% YoY respectively during the fourth quarter of FY15 (4QFY15). Here is our analysis of the results:

Performance summary
  • Net sales rise by 4% YoY during the quarter ended March 2015 (4QFY15).
  • Operating margins witness a sharp improvement as most major cost heads witness a decline.
  • Driven by the higher operating profit, bottomline level rises by 273.8% YoY during the quarter.

Standalone Financial Performance Snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 9,244 9,614 4.0% 36,321 35,939 -1.1%
Expenditure 8,562 7,228 -15.6% 31,205 29,317 -6.1%
Operating profit (EBITDA) 682 2,386 249.9% 5,117 6,622 29.4%
EBITDA margin 7.4% 24.8%   14.1% 18.4%  
Other income 630 378 -40.0% 1371 1379 0.6%
Depreciation 773 622 -19.5% 3,063 2,499 -18.4%
Interest 495 473 -4.5% 1881 1938 3.0%
Profit before tax 44 1,669 3711.0% 1,543 3,564 130.9%
Tax (206) 735 NA 166 1,141 585.5%
Effective tax rate NA 44.0%   10.8% 32.0%  
Profit after tax 250 934 273.8% 1,377 2,424 76.0%
PAT margin 2.7% 9.7%   3.8% 6.7%  
Extraordinary gain/(loss) - -   - -  
Net profit 250 934 273.8% 1,377 2,424 76.0%
Net profit margin 2.7% 9.7%   3.8% 6.7%  
No of shares (m)       238.0 238.0  
Diluted EPS (Rs)*         10.2  
P/E (times)*         31.5  
*trailing twelve month earnings

What has driven performance in 4QFY15?
  • During the quarter ended March 2015 (4QFY15), The Ramco Cements reported a 4% YoY rise in topline growth. As can be seen in the table below, there has been a sharp decline in cement sales volume. The rise in the topline, therefore, can be attributed to better cement realisations.

    Cement Sales Volume
    (million tonnes) 4QFY14 4FQY15 Change FY14 FY15 Change
    Domestic 2.2 1.8 -16.3% 8.4 7.5 -10.7%
    Exports 0.1 0.1 -18.4% 0.2 0.2 -15.1%
    Total 2.2 1.9 -16.3% 8.6 7.7 -10.8%

  • Most major cost heads, barring employee costs, witnessed a decline. One of key reasons for the decline in operating costs is the softening of fuel prices. As a result, the company's operating (EBITDA) margins expanded from 7.4% in 4QFY14 to 24.8% in 4QFY15.

    Operating cost break-up
    (Rs m) 4QFY14 4QFY15 Change
    Raw Material Consumption 1,549 1,284  
    Change in Inventory (1) (38)  
    Total Raw Material Cost 1,548 1,246 -19.5%
    % of net sales 16.7% 13.0%  
    Employee Cost 559 602 7.8%
    % of net sales 6.0% 6.3%  
    Power & Fuel 2,260 1,638 -27.5%
    % of net sales 24.5% 17.0%  
    Transportation & Handling 2,549 2,380 -6.6%
    % of net sales 27.6% 24.7%  
    Other Expenditure 1,646 1,363 -17.2%
    % of net sales 17.8% 14.2%  
    Total operating expenditure 8,562 7,228 -15.6%
    % of net sales 92.6% 75.2%  

  • Other income decreased by 40% YoY during the quarter.

  • Depreciation charges declined by 19.5% YoY on account of implementation of depreciation method based on useful life of fixed assets as per the Companies Act 2013.

  • Interest expenses declined as the company's debt burden has declined.

  • As against tax credit of Rs 206 million during 4QFY14 on account of MAT credit, there was tax outgo of Rs 735 million during the current quarter.

  • In line with the improved operating margins, the bottomline grew by 273.8% YoY. Net profit margin expanded from 2.7% in 4QFY14 to 9.7% in 4QFY15.
What to expect?
While there has been a significant improvement in the company's margin profile during the quarter on account of softening fuel prices, the sharp decline in sales volume reflect the sluggishness in the cement industry.

The slow recovery in the economy and the persistent slowdown in the housing and infrastructure sector have marred the recovery prospects of the cement industry for the short to medium term. Over the long term, however, the company stands to benefit from the expected boost to infrastructure activities on account of the bifurcation of the state of Andhra Pradesh and the likelihood of revival in construction activity owing the new central government's thrust on housing and infrastructure development.

It must be noted that the company has installed a new grinding unit with capacity of 0.95 million tonnes per annum in Andhra Pradesh. The grinding unit was commissioned in March 2015.

The company's board of directors recommended a dividend of Rs 1.5 per equity share of Rs 1 face value for the financial year 2014-15. It must be noted that the dividend for the previous fiscal was Re 1 per share.

At the current price, the stock is trading at 31.5 times its trailing twelve month standalone earnings. We maintain our Sell view on The Ramco Cements.

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