Saturday, August 25, 2012

Ramco Industries Ltd

  1. Ramco Industries Ltd is engaged in building products like Fibre Cement (FC) Roofing sheets, Calcium Silicate Boards (CSB), Fibre Cement Pressure Pipes and Cement Clinker Grinding (CCG).
  2. Sales of FC Sheets which is the mainstay of the company increased to 5,50,026 MT in FY 2012 recording a growth of 15% over previous year. In monetary terms, turnover was higher at Rs. 492.70 crore in FY 2012 compared to Rs. 381.85 crore in previous year.
  3. CSB sales turnover for FY 2012 was Rs 30.01 crore. It was marginally lower compared to previous year. Company is also in process of setting up a modern plant for manufacture of Calcium Silicate Boards with an annual capacity of 48,000 M.T. at Kotputli, Rajasthan.
  4. Company also has business interests in Cotton yarn.  During FY 2012, the division produced 24.65 lakh kgs of Cotton Yarn compared to 31.12 lakh kgs produced in the previous year.
  5. Windmill capacity installed by the company is 16.40 MW. During FY 2012, they generated 302 lakh units of electricity.
  6. The Company also has a foreign subsidiary in Sri Lanka. Performance of the FC Sheet Plant of the subsidiary improved and it produced 1,11,888 MT during FY 2012 as against 1,06,801 MT during previous year. Net Sales were SLR 32,839 lakhs (Rs 139.90 crore) in FY 2012 as against SLR.25,492 Lakhs (Rs 103.65 crore) during the previous year.
Ramco Industries Ltd belongs to the Ramco Group. Promoter Directors are Mr P.R. Ramasubrahmaneya Rajha, Chairman and Mr P.R. Venketrama Raja, Vice-Chairman & M.D.
The promoters have bought 144221 shares from market during Q1-FY2013. Their stake has increased to 53.92% at end of June 2012 (compared to 53.75% in Mar 2012). No pledged holdings from promoters.

Factories for building products are located at Arakkonam & Gangaikonda in Tamil Nadu, Bihiya in Bihar, Karur in Karnataka, Kharagpur in West Bengal, Maksi in Madhya Pradesh, Sinugra in Gujarat, Silvassa, Union Territory of Dadra & Nagar Haveli and Vijayawada in Andhra Pradesh. Cotton yarn facility is at Rajapalayam, Tamil Nadu.

  1. As per consolidated financials, total sales for FY 2012 was Rs 798 crore as compared to Rs 672 crore in previous year. There is improvement both in volumes and realizations in building products.
  2. Raw material is their biggest operating expense constituting around 55-60% of sales. Chrysotile fibre and cement are the main raw materials.
  3. Consolidated PAT for FY 2012 was Rs 76.88 crore as compared to Rs 60.67 crore in previous year.
  4. Net cash flow from operations for FY 2012 was at Rs 50.70 crore compared to Rs 138.71 crore for previous year.  Ramco acquired fixed assets to the tune of Rs 97 crore in FY 2012 (both by way of building and plant & machinery. It therefore did not yield free cash flow.
  5. Ramco’s paid up share capital is just Rs 8.68 crore and networth of Rs 446 crore as at 31-03-2012. Debt marginally increased to Rs 248 crore as at end of FY 2012 compared to last year.
  6. ROE improved to around 16% level as at end of FY 2012. Operating margin at around 17% and net margin at 9.5% level.
  7. Ramco’s activity can be said to have element of seasonality with Q1 and Q4 as comparatively stronger quarters. Q2 is generally a weak quarter due to monsoon effect.
  8. Coming to Q1-FY 2013, company posted strong results with sales at Rs 268 crore recording growth of 45% y-o-y and 41% q-o-q.  PAT was at level of Rs 22 crore. Net Margins were down 150 bps y-o-y and 490 bps q-o-q that is attributable to decline in operating margins and higher tax rate.
Risks & Concerns
  1. Profitability of the cotton yarn division is a major concern due to power cuts and related problems.
  2. Seasonality of building products industry with weakness in Q2 and Q3.
  3. Restrictions on chrysotile sheets in some countries due to health hazards.
Investment Thesis
Ramco is a well managed company expanding well over the years, with subsidiaries contributing to growth. We have included it here for another reason, and that is its investments in listed companies including its group companies – Madras Cements Limited , Ramco Systems Limited and Rajapalyam Mills Limited. They also have some investments in HDFC Limited, HDFC Bank, Indian Bank etc. Total market value of all these listed investments is in excess of Rs 1,000 crore and on cost basis at Rs.197.42 crore.
Company’s Market Cap is Rs 491 crore. After accounting for debt and cash, Enterprise value is at about Rs 700 crore.  EPS for FY 2012 is at Rs 8.87 and estimate for FY 2013E estimates are indicative of Rs 10.
BV for FY 2012 stood at Rs 48.
There was some market buzz that it may be looking at offloading some stake in Madras Cements to one of the international cement players. Haven’t seen any firm report though.
At CMP of Rs 56, the stock quotes at 5.5x FY 2013 and this looks promising offering good upside potential both by way of a decent core operating business and value of investments.
PS- Please do your own due diligence before any investment decisions.


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