Sell Ramco Cements; target of Rs 521: SPA Financial

Ramco continued to report impressive set of numbers backed by improving volumes and better operating efficiency. While improving demand scenario in AP & Telangana region resulted in 18.9% YoY growth in volumes, EBIDTA/tonne improved by INR 96/tonne to all time high of INR 1509/tonne (amongst the best in industry). Profitability was further boosted by 38.3% YoY decline in interest expenses owing to INR 3.5 bn of debt repayment in H1FY17. Although Ramco remains one of the best bets to play the cement demand recovery theme across South India, we change our rating on the stock from "HOLD" to "SELL" with a target of INR 521, as current valuation factors in most of the positives. Ramco remains one of our best mid cap bets to play to the cement demand recovery theme in South India. Superior operating profitability, dominant market share backed by strong brand recognition ensures buoyant growth prospects for the company. Having split grinding unit near to high consumption markets minimizes transportation costs and helps in timely servicing of the demand. However despite all these positives, we change our rating on the stock from “HOLD” to “SELL” with a target of INR 521 (based on an avg. of 10x FY18 EV/EBIDTA & FY18 EV/tonne of INR 7475), as valuation of 11.7x FY18E EV/EBIDTA & EV/tonne of INR 9046, factors in most of the positives.