Buy Ramco Cements; target of Rs 430: Reliance Securities

Reliance Securities' report on The Ramco CementsRamco Cements (RCL) reported healthy operating performance amid subdued demand environment as EBITDA grew by ~46% yoy to Rs2.73bn ahead of our estimates of ~Rs2.15bn. Strong growth is on account of ~6% yoy jump in average realizations to Rs5,028/tonne and a meaningful decline in operating costs/tone (down ~7% yoy). EBITDA margins stood at ~31.3% (best in the industry), which is 1,102bps higher compared to last year. Cement EBITDA/tonne stood at Rs1,409 as against ~Rs785 seen last year. A significant decline in fuel prices along with cost reduction measures adopted by RCL aided in low operating costs. Reported PAT came in at Rs1.38bn (up by ~55% yoy and ~42% qoq). We factor healthy margin show in 2Q and accordingly upgrade EBITDA estimate by ~13% for FY16E. We maintain BUY recommendation on RCL with a Target Price of Rs430.  Outlook and valuation We continue to believe that firm cement realizations across the Southern markets and likely pickup in demand from FY17E, will aid RCL to witness volume uptick with healthy margins. We factor healthy margin show in 2QFY16 in our assumption and accordingly upgrade EBITDA margins despite cutting volume estimates by ~12% and ~14% for FY16E and FY17E, respectively. We retain BUY recommendation on the stock with a Target Price of Rs 430.For all recommendations, click here  Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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