Because of increasing utilisation of new and existing capacities, we expect volume to grow by ~17/3/4% YoY for FY24/25/26E. With the steady energy cost correction and increasing operating leverage, the Ebitda should move linearly towards +Rs 1100/tonne by FY26E.
However, high exposure to the south market with higher ordinary portland cement sales and volatile demand will keep operating profitability under check in the short run.
We remain positive on Ramco Cements for its strong retail presence in the south, low-cost cement producer, steadily increasing capacity share and improving share of waste heat recovery system and renewable energy.
Ramco Cement incurred capex of Rs 12 billion in H1 FY24, which includes acquisition of limestone-bearing lands in Andhra Pradesh and Karnataka for its future expansion and guided another Rs 4 billion for H2 FY24.Additionally, ~Rs 3 billion maintenance capex plus future expansion capex will be incurred in FY25E, leaving no room for deleveraging in near future.
Therefore, we trimmed our profit after tax estimates by 17/16% for FY24/25E due to higher interest outgo and net debt/Ebitda will remain elevated close to ~twio times till FY26E.
At current market price, stock trades at 15/14 times enterprise value/Ebitda on FY25/26E.
We rolled forward estimates to FY26, and valued the stock at 15 times EV/Ebitda, arriving at a target price of Rs 1163. We recommend an ‘Add’ rating.