Sell The Ramco Cements Ltd for the Target Rs. 725 by Emkay Global Financial Services Ltd
We downgrade The Ramco Cements (TRCL) to SELL from Reduce and cut our TP by 19% to Rs725 from Rs900. TRCL reported standalone EBITDA of Rs3.75bn (up 16%/33% YoY/QoQ) and was ~16%/11% below our/consensus estimates. The underperformance was mainly due to dull volume growth and cost pressures seen in unit variable costs. Cement volume growth of ~4% YoY continues to disappoint, with market share loss for the 5th consecutive quarter/ 2nd consecutive fiscal year, respectively. Unit variable costs rose 4% each on YoY and QoQ basis and caused dent to the margins. We believe higher usage of low calorific coal (vs pet coke) and higher lead (up 20km QoQ, flat YoY), could have resulted in higher costs. Consequently, EBITDA/t stood at Rs670 (Emkay: Rs750) vs Rs605 YoY and Rs610 QoQ, implying the lowest profitability vs peers, with a 20-50mtpa capacity base. Our view: We remain disappointed with the below-par profitability in an otherwise strong industry quarter. We expect the performance to remain underwhelming, particularly in 1HFY27, with input cost headwinds and a subdued volume outlook. Further, in a volatile environment, we see upside risk to already high net debt/EBITDA of 2.5x (FY26), which may delay the planned capex targets. Weak Q4 results and only partial price hikes vs cost pressures lead us to cut FY27E/FY28E EBITDA by 17%/10%, respectively. Factoring this in and aligning valuations with peers, we reduce our ascribed EV/EB multiple to 12x from 13x and value TRCL on FY28E EBITDA.
Volume and cost pinch
TRCL reported standalone revenues of Rs26bn, up 9% YoY, driven by ~4% and 5% uptick in blended realization and total volumes, respectively. Cement realization improved 2.7% QoQ (in line), while cement volumes grew 3.6% YoY, lower-than-industry growth of 7- 8%. Construction chemicals’ revenues grew 59% YoY, finishing FY26 at Rs3.5bn (targets ~Rs20bn by FY30). On the cost front, TRCL increased low calorific coal usage to 69% in Q4FY26 vs 33% YoY and 46% QoQ. This resulted in blended fuel cost/Kcal jumping to Rs1.62 vs Rs1.50/1.57 YoY/QoQ and causing >5% inflation in (RM+P&F cost/t), each on YoY and QoQ basis. Unit freight costs, albeit flat YoY, increased 2.5% QoQ due to increased lead distance (up 20km). We see this as an approach to compensate for the market share loss that occurred previously. Adjusted PAT stood at ~Rs720mn, up ~3.5x YoY.
Upside risk to already high leverage
TRCL spent Rs10bn as capex in FY26, ~17% lower than guidance provided at FY25-end. Further, net debt/EBITDA stood at 2.5x in FY26, which we see as carrying upside risk given volatile input costs and a subdued demand environment. Also, the buffer from noncore asset disposals is now limited to Rs1.5bn (vs Rs11bn already sold over the past two years). Hence, we see upside risk to already high leverage in FY27E (4x) and consequently, a higher probability of a lower capex budget in FY27 as well.
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