Q2FY19 result highlights
Key positives: Strong volume growth, cost efficiencies on qoq basis
Key negatives: cost pressures, weak realistions
Impact on financials: FY19/20E EPS cut by 4% each to Rs24/32
Valuation and view
Ramco, a premium player in South India, has gained market share and undertaken cost efficiency initiatives, which has led to sharp earnings growth momentum over the past few years. While there are near term headwinds in form of high earnings base and higher fuel prices (likely to restrict near term earnings growth), we believe long term growth drivers are in place led by demand revival in the South, particularly in AP and Telangana as also deeper penetration into the East. Ramco continues to focus on maintaining its cost leadership position and sustained free cash flow generation. Stock trades at 11.6x FY20E EV/EBITDA and at US$104 on EV/t basis. Maintain Outperformer.
Ramco Cements is engaged in the manufacture and production of cement, ready mix concrete and dry mortar products in India. Co. operates in three divisions: Cement; Drymix Products and Ramco Concete. In the Cement Division, Co.'s main product is Portland Cement, which is manufactured in eight production facilities that include integrated cement plants and grinding units. Co.'s Dry Mix Division manufactures pre mixed dry mortars such as plasters, wall putty and tile adhesive. Co.'s Ramco Concrete Division manufactures concrete based on customers requirements such as permutations based on concrete grades, workability and site conditions. Co. also operates a wind farm in India.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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