Hold The Ramco Cements; target of Rs 750: Prabhudas Lilladher

Prabhudas Lilladher's research report on The Ramco Cements

We believe that TRCL's margins peaked-out in Q1 as the competition for volumes intensified in South region post July in wake of weak discipline and high price levels. The upcoming new supplies of Chettinad cement, Penna and TRCL would further weaken prices in the region. Sharp fall of ~20% in pet coke/thermal coal prices over last six months would reduce costs for cement companies by Rs150/t in H2FY20E. However, weakness in prices (due to intense competition) would more than dilute the tail wind on costs and hence, would keep margins under pressure in FY20E/FY21E. We cut our EBITDA estimates for FY21E by 9% to factor in lower prices.

Outlook

In light of expensive valuation and pressure on margins, we maintain Hold with a TP of Rs750 (earlier Rs820), EV/EBITDA of 13x FY21E.