Reduce Ramco Cement, target price Rs 568: Centrum

Centrum has given a reduce rating to The Ramco Cements with a target price of Rs 568. The share price moved up by 1.41 per cent from its previous close of Rs 618.40. The stock’s last traded price is Rs 627.10.

The brokerage says the challenges in 4QFY20 was reflected in Ramco Cements performance as revenues fell ~9 per cent year on year to Rs 13.9 billion (5 per cent ahead of CBL estimates) as volume fell by 11 per cent (more than estimated) while realisation gained marginally by almost 1.7 per cent. Costs inflated (cost/tonne) by 3.3 per cent year on year as increased promotional expenses pushed other expenses higher (13 per cent year on year) and negated savings in energy and logistic cost.

Limited realisation gains, higher cost inflation and volume decline due to Covid-19 impact in the last two weeks of 4Q dragged the EBITDA down by 14 per cent year on year to Rs 2.8 billion. EBITDAM fell marginally to 20.1 per cent from 21.2 per cent in 4QFY19. The PAT fell only by ~12 per cent year on year to Rs 1.46 billion (Rs 1.65 billion in 4QFY19) due to lower tax outgo.



Investment Rationale

According to the brokerage, the combined effect of steady recovery in FY22 following the Covid-19 pandemic impact, lower than estimated capacity utilisation of the newly added capacities and new capex related debt servicing will impact the performance of Ramco Cement in FY22, while FY21 performance will be hit by the lock-down and pandemic impact.

Additionally, higher revenue contributions from eastern region will dilute realisations. Factoring the same, the brokerage has revised its FY21/FY22 earnings estimates downwards to Rs19.4/34.5 (earlier Rs 25.5/Rs39.2). As the stock continues to trade at premium, the brokerage has revised its ratings downwards to reduce from add earlier.

Centrum has valued Ramco at a replacement cost of almost Rs 7.5 billion/mt based on FY22E capacities to arrive at a target price of Rs 568/sh (earlier Rs 582/sh). At the new target price, the stock trades at an EV/EBITDA of 10.4 times FY22E earnings.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1381.74 crore, up 8.56 per cent from last quarter sales of Rs 1272.76 crore and down -9.48 per cent from last year's same quarter sales of Rs 1526.51 crore. The company reported net profit after tax of Rs 145.67 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 42.66 per cent stake in the company as of March 2020, while FIIs held 8.91 per cent, DIIs 27.85 per cent and public and others 20.58 per cent.