Hold The Ramco Cements; target of Rs 925: Prabhudas Lilladher

Prabhudas Lilladher's research report on The Ramco Cements

The Ramco Cements (TRCL) reported disappointing earnings for Q3FY22. EBITDA declined 42% YoY to Rs2.3bn, below our/consensus estimates (CE) by 30%/35%. The miss was largely due to weak realisations and high cost, partially offset by better than expected volumes. 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.

Outlook

We trim our earnings estimates by 15%/5% for FY22e/FY23 due to cut in margin estimates. Given the expensive valuations and deteriorating earnings quality, we maintain Hold rating with revised TP of Rs925 (earlier Rs1,1015), EV/EBITDA of 13x FY24e.