Sharekhan recommended hold rating on The Ramco Cements with a target price of Rs 750 in its research report dated November 02, 2017.
Sharekhan's research report on The Ramco Cements
The Ramco Cements (Ramco) posted 5% YoY growth in net sales to Rs1,066 crore during Q2FY2018. This was on account of a 6.3% YoY growth in cement volume and 1% YoY increase in the blended realization. The slowdown in Tamil Nadu, its key market due to drought and sand shortage continues to keep volume under pressure in the Southern region but Eastern markets continue to grow at healthy pace. The Operating Profit Margin (OPM) declined sharply by 644basis points YoY to 28.3% on account of higher power & fuel (up 35% YoY on per tonne basis due to rise in the petcoke price) and higher freight expenses (up 10.9% YoY on per tonne basis). Consequently, the blended EBITDA per tonne was also declined by 18% YoY to Rs1,071. Led by a sharp decline in the OPM which was partially offset by decline in the interest cost (down 38.7% YoY), the PAT declined by 18.6% YoY to Rs168.5 crore.
We have fine tuned our FY 2018 and FY 2019 earnings estimates. We do not see any significant positive triggers in the near term given that the benefits of capacity expansion would be back ended. Further, high operating cost (fuel and freight) is expected to keep margins under check. Hence, we maintain our Hold rating and price target of Rs750 on the stock.
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