Buy The Ramco Cements; target of Rs 1034: Geojit

Geojit's research report on The Ramco Cements

The Ramco Cements Ltd. (TRCL), the Ramco Group’s flagship company, is the 5th largest cement company in India with a total production capacity of ~22MT (South-19MT & East-3MT). TRCL has a captive thermal power capacity of 175MW and a windmill capacity of 126MW. We maintain our BUY rating with a target price of Rs. 1,034, considering strong volumes and the expected improvement in margins. Revenue growth was strong at 26%YoY for Q1FY24, mainly aided by strong volumes (+28% YoY). However, operating profit grew by only 14%YoY as EBITDA margin declined by 170bps YoY to 15.2% due to elevated fuel prices. Recent decline in fuel prices will reflect in margins in the coming quarters. High capex during FY19-FY23 resulted in a high debt level (Rs. 44bn vs. Rs. 10.3bn in FY19). However, Net debt-to-EBITDA is at 3.7x vs. 4.5x during the last capex cycle. Deleveraging has already started (net debt was Rs. 47.4bn in Q2FY23) and expect more reduction post FY24. Cost reduction measures like Waste Heat recovery and converting of windmill power to captive, will save cost of ~Rs. 130-180 per ton. TRCL trades at 13x 1Yr Fwd EV/EBITDA. We value TRCL at ~14x (5Yr avg=14) FY25E EBITDA, considering the strong demand outlook.

Outlook

TRCL’s capacity expansions, coupled with GoI’s strong focus on Infra & Housing, will aid future volumes. Now, declining input costs coupled with a shifting focus to deleveraging post FY24 will support valuation. The stock currently trades at ~14x 1Yr Fwd EV/EBITDA. We value TRCL at ~14x FY25E EV/EBITDA (5Yr avg=14) and arrived at a target price of Rs. 1,034, maintain BUY rating considering strong volumes and deleveraging.

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