Stock To Buy: Anand Rathi Suggests This Cement Stock, Volume Can Grow 15%

Target Price, CMP, and performance: Ramco Cement

The Current Market Price (CMP) of Ramco Cements is Rs. 645. Anand Rathi has estimated a Target Price for the stock at Rs. 784. Stock is anticipated to give a 21.55% return, in 1 year. The company is a mid cap company with a market capitalization of Rs. 15,737 crore.

The company's revenue has increased 4.6% y/y, on 5% y/y higher realisations. Price hikes could not counter high costs, leading to EBITDA declining 35.8% y/y to Rs. 2.8bn. EBITDA/ton plunged 35.5% y/y to Rs. 889. With contract for fuel for five months (in transit + inventory), the cost of petcoke in Q1 is expected at ~$225/tonne, vs $190 in Q4 FY22. Heavy rains in the South curtailed demand and subdued pricing in the East led to production cuts where sales declined 0.6% y/y to 3.19m tonnes. PAT slid 42% y/y to Rs1.2bn on the weak operating performance and higher interest cost, partially aided by lower tax and higher other income.

Advantages and risks: Anand Rathi

On the low base and more government expenditure/coming elections, the company's demands in the East is expected to grow 15%. While prices have been hiked Rs. 20 (East) and Rs. 10-15 (South), a Rs. 40/bag hike is necessary to pass on the high costs. For FY23, volumes are guided to grow 12-15% backed by firm demand and ramping up of capacity.

Maintaining a buy rating, Anand Rathi stated, "While the 27MW WHRS at Jayanthipuram has been fully commissioned (in phases), the coming 12.15MW WHRS/18MW CPP would help save fuel cost. The 2.25m-tonne clinker line at Kurnool began trial production, and the Kurnool and Karnataka GUs of 1m tonnes each are to commence by Q2 FY23 and FY24, and the 0.35m tonne RR Nagar clinker modernisation by FY23. Despite Rs. 13.5bn capex in the next two years, debt is guided to be reduced by Rs. 5bn in FY23 (March 31, 22 gross debt: Rs. 39.3bn). We expect volume/revenue/EBITDA to clock 11%/13%/13% CAGRs over FY22-24."

However, according to the brokerage firm, "Higher costs and headwinds in its operating region (heavy rain/lower prices) battered Ramco's Q4 performance. While major costs are high, the coming WHRS/CPP and price hike would partially contain them. Capacity expansions would boost volume growth and operating efficiencies. The B/S continues to be leveraged."

About the company

Ramco Cements Limited is the flagship company of the Ramco Group, a well-known business group in South India. It is headquartered in Chennai. The main product of the company is Portland cement, manufactured in eight state-of-the-art production facilities that include Integrated Cement plants and Grinding units with a current total production capacity of 16.45 MTPA (out of which Satellite Grinding units capacity alone is 4 MTPA). The company is the 5th largest cement producer in the country. Ramco Grade is the most popular cement brand in South India. The company also produces Ready Mix Concrete and Dry Mortar products and operates one of the largest wind farms in the country. The company has its R&D centre, Ramco Research Development Centre (RRDC), in Chennai, Tamil Nadu.

The company is initiating capacity expansion, of the 4.2m-tonne cement capacity expansion, grinding units of 3.2m tonnes were completed by Q2 FY21 (1.05m tonnes at Vishakapatnam, AP, 1m tonnes in Odisha and 1.1m tonnes at Kolaghat, West Bengal).

Disclaimer

The above stock was picked from the brokerage report of Anand Rathi. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.