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Widening geographical reach to drive the volume growth:

The company has strong foothold in Tamil Nadu and decent presence in Kerala, Andhra Pradesh, Telangana, Karnataka and over the last few years, it has expanded its presence to West Bengal & Odisha as well. The rapidly rising demand in North Eastern states driven by government’s push for infrastructure projects have attracted cement players to expand into the region. The company has been operating 2.00 MTPA capacity in West Bengal and 2.00 MTPA capacity in Vizag (Andhra Pradesh) to service the eastern market, which constituted ~27% of FY22 turnover. The rising share in faster growing eastern market is expected to be continued going forward which will drive the top-line growth. We expect utilization levels in the east to remain high over the next couple of years despite capacity additions on account of developing infrastructure and rising housing need.

Expanding capacities, operating efficiencies and peaking of debt to strengthen the financials:

Over the years, better usage of resources, adaptation of technological advancements, and, cost management have resulted into strong operational efficiencies which in-turn have resulted into leading EBITDA margins & strong and consistent cash flows as compared to peers. Currently, the EBITDA margins are under pressure on account of steep-rise in power and fuel costs, nevertheless, the EBITDA margin stood above 21% for the year ended March 31, 2022. Furthermore, on an average, Ramco generated more than Rs.1,100 cr of operating cash flows annually for last 7-8 years and utilized most of that to expand capacities. The Management has guided for a capex to the tune of Rs.1,350-1,400 cr over the next two years. Robust cash-flows have led to manageable debt-equity-ratio despite consistent capex. Overall, the risk profile has been strong with adequate cash accrual and moderate debt.

 OUTLOOK & VALUATION

Ramco is a leading cement manufacturer in south. It sells majority of its product in Tamilnadu; also sells to Kerala, Karnataka, Andhra Pradesh, Telangana, West Bengal and Odisha. The company has total capacity of 19.4 MT which is being increased to 20.4 MT during FY23. Not only the company is expanding its capacities but its also widening its geographical presence to eastern markets which will allow Ramco to break capacity constraints and grab the market share in the east, respectively. Considering the Government’s push towards Housing for all & infrastructure (roads, irrigation) and its dominance in southern states, we expect cement demand to continue to grow and expect company to post better margins, going forward. For FY24, we expect company to post an EBITDA of Rs.1,712 cr and applying a target multiple of 15x, we arrive at a target price of Rs.930 per share, showcasing ~18% upside from current levels with an investment horizon of 18-24 months.

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