Brokerage houses remained mixed in their opinion on Ramco Cements despite better-than-expected earnings in the July-September quarter.
The stock rallied 35 percent in the last nine months and gained more than 7 percent in the last 15 days.
While having a buy call on the stock, CLSA raised its target price to Rs 1,050 from Rs 970 earlier, implying 36 percent potential upside from current levels as the volume growth of about 10 percent YoY came as a big positive surprise.
The next 18 months would be busy as the company plans to add 45 percent to its capacity base, said the brokerage which slightly raised its EPS estimates on better-than-expected results.
"It is our preferred pick due to its focus on growth & cost optimisation, though weak cement prices in the south and east are near-term concerns," CLSA said.
the consolidated profit of the cement maker increased sharply by 43.2 percent YoY to Rs 172.3 crore in the quarter ended in September while the revenue rose 11 percent YoY to Rs 1,324 crore during the quarter.
Ramco sold 27.24 lakh tonne of cement in the September quarter, higher by 10.3 percent more compared to 24.69 lakh tonne sold in the year-ago period.
At the operating level, its earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 17.9 percent YoY to Rs 300 crore, and the margin expanded 130bps to 22.6 percent compared to the same period in 2018.
The realisation declined 6.3 percent QoQ. Operating expenses per tonne fell 1.3 percent YoY on lower freight costs while EBITDA per tonne stood at Rs 995 against Rs 862/Rs 1,270 in Q2FY19/Q1FY20. The commercial production of the second unit of one million capacity at Kolaghat, West Bengal began on September 26.
Emkay also said Ramco's performance in Q2 was better than its estimates, driven by strong volume growth. But, it feels valuations at 15x FY21E EV/EBITDA appeared rich and, hence, maintained the hold rating on the stock with a target price at Rs 819, implying 6 percent potential upside from current levels.
The capacity increase in South and East regions should help volume growth over FY19-22, the brokerage feels.
Prabhudas Lilladher also said Ramco Cements had reported Q2FY20 EBIDTA 3 percent/13 above its/consensus estimates. The marginal beat came largely on account of better than expected volume growth, it added.
The brokerage has a hold rating on the stock with a target at Rs 780 due to expensive valuations and weaker margins.
"Ramco's margins fell sharply by 24 percent QoQ as the competition for volumes intensified in South region post July in wake of weak discipline, poor demand and high price levels. The upcoming new supplies of Chettinad cement, Penna and TRCL would keep region's prices under prolonged pressure. Sharp fall of around 20 percent in pet coke/thermal coal prices over last six months would help in costs lower by Rs 100-120 per tonne in second half of FY20. However, weakness in prices (due to intense competition) would more than dilute the tail wind on costs and hence, would keep margins under pressure in FY20/FY21," it reasoned.News Source: Moneycontrol