Buy The Ramco Cement; target of Rs 780: ICICI Direct

ICICI Direct's research report on The Ramco Cement

Ramco Cements’ Q1FY21 numbers broadly remained above our estimates with better net profitability. The company reported a 24.6% YoY drop in revenues to Rs 1,048 crore (vs. I-direct estimate of Rs 934 crore). This was mainly led by 28.3% fall in sales volume during the quarter to 1.94 MT (vs. I-direct estimate: 1.8 MT) as the company’s operation were impacted from mid-March due to imposition of lockdown. On the other hand, realisations remained better, increasing 5% YoY to Rs 5,408/tonne (vs. I-direct estimate: 5043/t). Total costs per tonne increased 6.6% YoY to Rs 4051/t. This was led by higher RM cost and employee expenses that were up 45%, 54.5%, YoY, respectively, on a per tonne basis due to lower sales volume absorption. On the other hand, power & fuel cost declined sharply by 20.8% YoY due to fall in pet coke prices. With better realisations, EBITDA margins were at 25.1% vs our estimated EBITDA margin of 18.5% for the quarter. EBITDA/tonne came in at Rs 1357/tonne (up 1.3% YoY, 41.9% QoQ) vs. our estimated EBITDA/tonne of Rs 957/tonne. Net profit was at Rs 110.9 crore (down 42.6% YoY, 23.9% QoQ) vs. our estimated net profit of Rs 59.1 crore for the quarter.

Outlook

Long history of operations, brand equity, low cost producer and a healthy B/S are key positives for the company. Due to this, the company is able to raise debt at competitive rates. We expect these factors to drive robust performance in the future as well. We maintain our BUY rating, valuing the stock at 14x FY22E EV/EBITDA. We arrive at TP of Rs 780 (i.e. EV/t of $155).

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