Sell The Ramco Cements Ltd for the Target Rs 800 by Emkay Global Financial Services Ltd
The Ramco Cements (TRCL) reported standalone EBITDA of Rs3.1bn (down 23%/18% yoy/qoq) and stood ~14% above our estimates (owing to lowerthan-expected variable cost), but ~26% below street estimates. Contrary to its FY26 trend, TRCL reported ~12% volume growth despite demand disruptions due to state elections in Tamil Nadu, Kerala, and West Bengal in 1QFY27. Unit variable costs increased by a meagre Rs50/t (up ~1% qoq), and were the main reason for the margin beat. We believe consumption of low-cost fuel inventory and lower lead distance (down by 12km qoq) have contained the sequential inflation in variable costs. Consequently, EBITDA/t stood at Rs666 (Emkay: Rs614) vs Rs966 yoy and Rs671 qoq, implying TRCL logged the lowest profitability vs peers (amid a 20-50mtpa capacity base). Our view: Despite better-than-expected results, we expect margin weakness in ensuing quarters as the company consumes high-cost fuel inventory and due to limited headroom for volume growth. Further, in a volatile environment, we see upside potential to the already high net debt-to-EBITDA of ~3x (TTM basis), which may delay the planned capex targets. Nonetheless, we factor in the lower cost in 1Q and increase FY27E EBITDA by ~29% while maintaining FY28 estimates. We continue to value TRCL at unchanged EV/E of 12x on 1QFY29E while revising up our TP by 10.3% to Rs800 from Rs725; maintain SELL.
Volume picks up pace; cost remains key monitorable in ensuing quarters
TRCL reported standalone revenue of Rs22.7bn, up 10% yoy, with strong blended volume growth of 12% yoy to 4.6mt, despite election-led demand disruption in TN, Kerala, and West Bengal. Cement realization was up 4.5% qoq, led by sustenance of industry-wide price hikes taken during early-1QFY27. On the cost front, blended fuel cost jumped to Rs1.85/kcal vs Rs1.55/1.62 yoy/qoq, as the company increases its coal usage by ~40pps/14pps on yoy/qoq basis. Unit RM+P&F cost rose 6%/2% yoy/qoq. Packing costs rose 30% yoy on polymer prices, pushing other expenses/t up 8.3% yoy. Total unit cost was up 4.7%/5.7% yoy/qoq. Consequently, EBITDA/t stood at Rs666 (Emkay: Rs614) vs Rs966 yoy and Rs671 qoq. Reported PAT stood at Rs319mn, down 63% yoy
Around 31mtpa by FY27-end; monetization cushion nearly exhausted
TRCL retains its ~31mtpa target by FY27-end via debottlenecking and the Kolimigundala brownfield, with 15MW WHRS to be commissioned alongside Kiln Line-2. FY27 capex guidance stands at Rs8bn, of which Rs1.76bn was spent in 1Q. Net debt rose to Rs39.4bn as of Jun-26 from Rs36.6bn at Mar-26. The non-core disposal buffer is nearly spent, with only ~Rs1.5bn identified as the balance vs Rs11bn monetized over two years till Mar-26. Further, in a volatile environment, we see upside potential to the already high net debtto-EBITDA of ~3x (TTM basis), which may delay the planned capex targets.
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