Reduce The Ramco Cements; target of Rs 590: Prabhudas Lilladher

Prabhudas Lilladher's research report on The Ramco Cements

The Ramco Cements (TRCL) posted Q1FY21 EBITDA in line with ours and above consensus estimates by 7%. While, PAT came below our estimates by 7% due to higher interest cost. We continue to remain negative on Southern region due to overcapacity as well as challenging demand outlook. Q1FY21 earnings for South based players were supported by strong pricing discipline in the region. However, prices have started softening due to increase in competition intensity to push volumes in rising market. Most importantly, 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.

Outlook

This is vindicated by narrowing gap on margins with its regional peers over last couple of years. Driven by expensive valuations and falling margin trajectory, we downgrade stock to Reduce with TP of Rs590, EV/EBITDA of 13x FY22e.

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