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Stock correction offers entry opportunity amid capacity-led growth prospects

We upgrade our rating on The Ramco Cements Ltd. (TRCL) to ‘ADD’ from ‘SELL’, with a target price of INR 880/share, following a ~15% correction in the stock over the past three months, which offers a relatively favourable entry opportunity and improves the risk-reward profile. As the company has not yet conducted its quarterly earnings call, our assessment is based on its press release and investor presentation

We expect volume growth to remain the key driver of earnings, supported by incremental capacity additions and improving capacity utilisation, which has reached at 72%. The planned expansion to ~31 MTPA by March 2027 should strengthen TRCL's regional presence, improve market reach and support operating leverage. We estimate volume CAGR of 6.0% over FY26–29E.

While elevated fuel and packaging cost are projected to remain nearterm margin headwinds, we expect gradual profitability improvement as input cost pressures moderate and pricing action gains traction. Further, the higher contribution of 50% towards green power should support structural cost efficiencies and partially offset conventional power cost inflation.

However, we estimate net cost escalation of ~INR 365/t in FY27E, which is likely to weigh on EBITDA/t and restrict near-term margin expansion, despite an anticipated recovery in cement demand. Accordingly, the pace of earnings recovery will remain dependent on the company's ability to pass on higher cost and deliver operating efficiency.

We estimate EBITDA CAGR of 11.0% over FY26–29E, driven by volume growth of 5.0%/6.0%/7.0% and realisation growth of 6.5%/0.5%/0.5% in FY27E/FY28E/FY29E, respectively. We believe the planned capacity expansion, improving utilisation and higher green power contribution provide medium-term earnings visibility, while the recent stock correction offers a more favourable entry point.

We value TRCL based on an EV/CE methodology, assigning an FY28E EV/CE multiple of 1.8x, which yields a target price of INR 880/share.

Q2FY27 result: Better-than-expected numbers on all fronts

TRCL reported Q2FY27 revenue and EBITDA of INR 24,583 Mn (+10.0% YoY, +8.3% QoQ) and INR 3,230 Mn (-16.5% YoY, +5.1% QoQ), respectively, vs CIE estimate of INR 24,144 Mn and INR 3,052 Mn, respectively. Total volume for Q2 stood at 4.7 Mnt (vs CIE estimate of 4.8 Mnt), up 4.2% YoY and up 2.7% QoQ. PAT for the quarter came in at INR 382 Mn

Blended Realisation/t came in at INR 5,186/t (+5.5% YoY and +5.5% QoQ), which was above CIE’s estimate of INR 5,067/t. Total cost/t came in at INR 4,505/t (+10.9% YoY and +6.0% QoQ). As a result, EBITDA/t came in at INR 681/t, down 169/t YoY and up 16/t QoQ.

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