Ramco Cement - Volume Growth To Slow Down; Leverage To Remain High: Motilal Oswal

Motilal Oswal Report

The Ramco Cement Ltd.’s net debt increased significantly in the past few years due to higher capex and lower profitability. Its cumulative capex over FY20-24E stood at ~Rs 93 billion while its cumulative operating cash flow was ~Rs 73 billion during the same period. The company’s net debt increased to Rs 47 billion from Rs 29 billion in FY20 and net debt to Ebitda stood at 3.0 times versus 2.6 times in FY20.

We estimate the company’s cumulative OCF to be Rs 32 billion over FY25-26 with a cumulative capex of Rs 30 billion over the same period. The company’s net debt is estimated to increase to Rs 55.5 billion by FY26.

We estimate the company’s return ratios to be lower due to weak profitability and higher capex. The company’s return on equity/return on capital employed are estimated at ~10%/8% in FY26E versus its historical average (over FY16-22) of ~14%/11%.

The stock is currently trading at 12 times /10 times FY25E/FY26E EV/Ebitda (versus its longterm average of 14x) and $113/$103 EV/tonne (versus long-term average of $130).

We value the stock at 12x FY26E EV/Ebitda to arrive at our target price of Rs 860 and maintain our Neutral rating on the stock.

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