Comments
Geojit Financial Services
Ramco Cements (Accumulate)
CMP: ₹769.1
Target: ₹840
The Ramco Cements Ltd is the fifth largest company in India with total production capacity of 16.69 MT (South-12.49 MT & East-4.2 MT).
The Ramco Cements is currently expanding its capacity in both South (2 MT) & East (2 MT) to reach total capacity of about 20.8MT by FY21 (Capex ₹3,530cr).
Post strong demand growth of about 13 per cent y-o-y in FY19, industry saw weakness in volumes in H1FY20 (about 1.5 per cent y-o-y). However, the demand is likely to pick up in FY21 driven by government focus on Infra & Housing.
Reduction in corporate tax along with other stimulus announcements by the GoI has boosted the long-term outlook on the industry and will support revival in capex cycle.
Expansion in East will enable the company to diversify and eliminate its capacity constraints in the region which will drive volumes.
Ramco Cement’s realisation and EBITDA per tonne is the highest among comparable peers given premium products and competitive edge due to own captive windmills and sea route transportation.
Softening of fuel prices will expand margins, expect EBITDA/ tonne to improve to ₹1,261 in FY22 versus ₹961 in FY19.
We believe strong fundamentals attract premium valuation. We value Ramco Cements at 12x FY22 EV/EBITDA and arrive at a target of ₹840, and recommend ‘Accumulate’.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.