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Ramco Cement - To Buy or Sell a Perspective

We present below an update for Ramco Cements for all the traders to come to a firm conclusion that whether they should buy or hold the stock.

Strong realisation spur earnings: For Q4FY2015, The Ramco Cements reported a strong earnings growth on account of a sharp increase in realisation (up 22.1% YoY) in southern India, although the volume for the quarter remained subdued (a 16.4% decline YoY). For the quarter under review, the company’s earnings stood at Rs93 crore (growth of 8x YoY) on account of strong realisation and better operating efficiency. Consequently, its EBITDA per tonne improved by 3x YoY to Rs1,143 per tonne.

Sustainability of price hike and volumes remain key parameters to watch: Although the tough demand environment persists in the southern region, yet the sustainability of the price hikes taken by the regional cement players to mitigate higher operating cost remains the key issue to monitor. We believe the southern region may remain under pressure with respect to demand although the company can reap benefit of operating leverage with improvement in realisation.

Reiterate Buy with price target of Rs420: We have revised our earnings estimates marginally downwards for FY2016 and FY2017 to factor in lower volume on back of a sluggish demand environment in the southern market. However, we maintain our Buy rating on the stock and reiterate our preference for The Ramco Cements as a preferred pick in the southern region (due to a relatively better balance sheet, quality of management and valuations). We have maintained our price target at Rs420.

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