Hold The Ramco Cements; target of Rs 650: Prabhudas Lilladher

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Prabhudas Lilladher's research report on The Ramco Cements

The Ramco Cements (TRCL) missed ours and consensus estimates. EBITDA declined 34% YoY to Rs2.95bn, below our/consensus estimates (CE) by 14%/6%. The miss was largely weaker than expected volumes and higher costs. We cut our EPS estimates by 18.1%/6.1% for FY23e/FY24e due to lower margins. We remain negative on Southern region due to overcapacity and volatile demand pattern. As demand outlook improves for region in FY23, volume growth would come at the cost of softer margins due to rise in competition for market share and low capacity utilisation. The same has played out in FY18-FY20, FY13-FY15 and FY09-FY11. Secondly, TRCL’s earnings profile would deteriorate with increasing exposure to low margin and volatile markets of AP/Telangana and East regions. We trim our earnings estimates by 15%/5% for FY22e/FY23 due to cut in margin estimates.

Outlook

Given the expensive valuations and deteriorating earnings quality, we maintain Hold rating with revised TP of Rs650 (earlier Rs831) as we trim our assigned EV/EBITDA to 11x (earlier 13x) FY24e.

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