Buy Ramco Cements; target of Rs 350: PLilladher

Prabhudas Lilladher`s research report on The Ramco Cements“TRCL sells 86%/~7.5mt of its total volumes in the Southern region. Hence, outlook on this region, especially AP, would remain key for TRCL. We expect a strong revival in AP’s demand, led by an end to the Telangana issues and the surcharged political climate. Stabilization of AP, strong IT sector and improved competitiveness of south-based industries with the connectivity to national electricity grid, would drive strength in region’s demand. We expect region’s utilization rates to rise to the highest levels in FY16, factoring conservative growth assumptions despite strong pent-up demand and improved environment. Consistently superior RoEs, judicious capital allocation, high quality balance sheet and cash flow generation clearly vindicates the strong quality of TRCL’s management which is the most missing element in south-based listed cement companies. Stock trades at US$109/t FY16E capacity, discount to an up-cycle average of US$130/t (FY2005-10). TRCL’s attractive valuations, coupled with best play on Southern region’s recovery, endorses our positive recommendation on the stock with low downside risk, given the bottomed-out earnings.” “Ramco Cement (TRCL) is expected to see a strong rebound from H2FY15 after their dismal performance in FY14. Underpinned by highly competitive operations, attractive valuations and high quality management, we rate TRCL as the best investment play on recovery in the South. We maintain our ‘BUY’ rating and TP of Rs350, an EV/T of US$130 FY16E capacity of 12.5m tones,” says Prabhudas Lilladher research report.

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