Emkay Global Financial Services has recommended hold rating on The Ramco Cements with a target price of Rs 250, in its research report dated July 28, 2014.
1Q EBITDA at Rs1.36 bn, (-30% yoy) 11% lower than estimates led by lower realisation and higher RM cost. RPAT boosted by lower depreciation and higher other income.
Volumes at 2.13 mtpa (-4% yoy), Southern price hikes during 1Q led +4% qoq realisation at Rs4236/t. EBIDTA/t at Rs555/t improved sharply by Rs250/t qoq
Producer understand to drive pricing improvement, would lead margin expansion going ahead. Maintain earnings
Stock is up 33% in 3 months. Expectation of political stability in Andhra fully captured in valuation (trading at 8.5x FY16e EV/EBIDTA). Maintain HOLD with a target price of Rs 250.
"TRCL stock has seen a very sharp 60%+ up move over last 6 months led by the formation of new government in the states of Seemandhra and Telangana and a pro development Government at the centre fuel sentiment of sharp recovery in demand and cement prices. However we believe that despite factoring in a strong recovery in EBIDTA/t to Rs911 in FY16 from FY14 level of Rs530, TRCL valuation at 8.5x EV/EBIDTA remain expensive and already factors in a lot of the expected positives and leaves little upside from current level. Hence we maintain our Hold rating on the stock with a revised target of Rs 250 (Earlier Rs 230). We have valued RCL at an EV/EBIDTA multiple of 8x which is at 20% discount to our target multiple for ACC (10x EV/EBIDTA) as compared to an average of 25% discount historically", says Emkay Global Financial Services research report.
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