Sell The Ramco Cements Ltd For Target Rs. 860 by Choice Institutional Equities Ltd
Elevated cost pressure to weigh on FY27E margin
We maintain our ‘SELL’ rating on The Ramco Cements Ltd. (TRCL) with a target price of INR 860/share. TRCL has not yet conducted its quarterly earnings call; hence, our assessment is based solely on the company’s press release and investor presentation.
Our target price factor in a sharper-than-peer expected increase in cement cost, primarily caused by elevated fuel price amid persistent geopolitical uncertainties. We estimate:
(1) Power and fuel cost to increase by INR 53/t in FY27E, due to an increase in fuel cost from INR 1.55/kcal to INR 1.85/kcal
(2) Other expenses to rise by INR 64/t, caused by a ~40% YoY increase in polymer prices. We anticipate the full impact of these cost pressures to be reflected in Q2FY27E.
Overall, we project a net cost escalation of ~INR 216/t in FY27E, which is estimated to weigh on EBITDA/t and limit margin expansion despite the expected recovery in cement demand
TRCL currently trades at 13.9x FY28E EV/EBITDA, which we consider to be expensive as compared to peers, particularly given the company’s relatively weak return ratios. Further, the balance sheet remains stretched, with FY26 Net Debt/EBITDA at 2.5x, limiting financial flexibility and constraining the scope for a meaningful improvement in return ratios. In our view, elevated leverage coupled with volatile profitability remains a key overhang on the investment case
We estimate TRCL’s EBITDA to rise at a CAGR of 11.9% over FY26– 29E, supported by volume growth of 5.0%/6.0%/7.0% and realisation growth of 3.5%/0.5%/0.5% in FY27E/FY28E/FY29E, respectively. While capacity-led volume growth should support earnings over the medium term, in our view, the pace of earnings growth remains insufficient to justify the current valuation premium
We value TRCL using an EV/CE-based methodology and assign an FY28E EV/CE multiple of 1.8x, arriving at a target price of INR 860/share. At our target price, TRCL would still trade at 13.9x FY28E EV/EBITDA, which we believe remains demanding for a cement company of TRCL’s scale, given its leverage, return profile and near-term cost headwinds
Overall, we retain our SELL rating as elevated cost, stretched leverage, relatively weak return ratios and premium valuation create an unfavourable risk-reward profile
Q1FY27 result: EBITDA margin hit due to higher expenses
TRCL reported Q1FY27 revenue and EBITDA of INR 22,690 Mn (+9.6% YoY, -12.9% QoQ) and INR 3,071 Mn (-22.8% YoY, -17.6% QoQ), respectively, vs CIE estimate of INR 21,203 Mn and INR 2,881 Mn, respectively. Total volume for Q1 stood at 4.6 Mnt (vs CIE estimate 4.4 Mnt), up 12.1% YoY and down 16.9% QoQ. PAT for the quarter came in at INR 318 Mn.
Blended Realisation/t came in at INR 4,917/t (-2.2% YoY and +4.8% QoQ), which was in line with CIE’s estimate of INR 4,857/t. Total cost/t came in at INR 4,251/t (+4.7% YoY and +5.7% QoQ). As a result, EBITDA/t came in at INR 666/t, down 300/t YoY and down 6/t QoQ
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