Hold The Ramco Cements; target of Rs 600: Prabhudas Lilladher

Prabhudas Lilladher's research report on The Ramco Cements

The Ramco Cements (TRCL) posted Q4FY20 EBITDA in line with ours and above consensus estimates by 9%. PAT came above our estimates due to lower tax rate. However, we were disappointed with sharp increase in debt. TRCL spent Rs31bn on capex over last couple of years towards the ongoing expansion of Rs35bn. In spite of sizeable spending in FY19 and FY20, capex of Rs13.8bn is left for spending on the ongoing expansion. This suggests steep cost over-run in ongoing capex and an abnormal run-rate of capex on sustenance and infrastructure creation. We continue to remain negative on Southern region due to overcapacity as well as challenging demand outlook. Admittedly, margins are expected to be strong in Q1FY20e due to sharp price increase.

Outlook

However, volumes would be equally weak due to extended lockdown in Tamil Nadu and severe shortage of labor in rest of states. Putting near time aside, we believe that TRCL’s earnings profile would continue to deteriorate with increasing exposure to low margin and volatile markets of AP/Telangana and East regions. Driven by expensive valuations and deteriorating B/S, we downgrade stock to HOLD with TP of Rs600 (earlier TP of Rs630) with EV/EBITDA of 13x FY22e.

The Ramco Cements 22062020