Buy Ramco Cement in the range of Rs. 695.00-710.00 for target price of Rs. 818.00 with a stop loss of Rs. 645.00. Time Frame: Six months
- The cement stocks after the sharp up move of April-July has witnessed a breather in the last two months, with shallow price correction thus exhibiting resilient despite elevated volatility
- The share price of Ramco Cement has been trading in a well defined rising channel since bottom out in April (Rs. 455) signalling sustaining demand at elevated levels. It is currently seen forming a higher base at the lower band of the rising channel and the 52 weeks EMA (currently placed at Rs. 684), thus offering fresh entry opportunity with a favourable risk reward set up
- We expect the stock to resume its primary up trend after last two months breather and is expected to head towards Rs. 818 levels in the coming months as it is the confluence of the 80% retracement of the entire CY 2020 decline (Rs. 884-455) and high of February 2020 placed at Rs. 819 levels
- Ramco is also one of the most cost efficient cement producers in south India, with cost advantage emerging from captive power of 175 MW and strategic plant location (split grinding unit near the markets and clinker plant near the mines). As a result, company continues to report healthy EBITDA/t compared to other Southern players (EBITDA/t of Rs. 1,024/t in FY20) that puts it in the league of tier-1 players
- On the capex front, Ramco spent Rs. 1,920 crore on capex in FY20. The management plans to spend ~Rs. 1,400 crore in FY21E to fund ongoing capex (Odisha GU, Jayanthipuram clinker unit, WHRS, Kurnool expansion), funded by debt, internal accruals. While debt would rise, debt/EBITDA would improve from 2.8x in FY20 to 2.2x by FY22E. Average cost of interest on debt for Ramco is 7.3%, much lower than RoCE. So once capex is complete, it would help improve RoE in double digits. D/E would also stay well below 1x
- Long history of operations, brand equity, low cost producer and a healthy B/S are key positives for the company. Due to this, the company is able to raise debt at competitive rates. We expect these factors to drive robust performance in the future as well. Hence, we remain positive on the stock from a long-term perspective
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_RamcoCement_Sep20.pdf
Shares of The Ramco Cements Limited was last trading in BSE at Rs.709.55 as compared to the previous close of Rs. 693.4. The total number of shares traded during the day was 15960 in over 1037 trades.
The stock hit an intraday high of Rs. 710.15 and intraday low of 688.9. The net turnover during the day was Rs. 11205708.