This cement stock hit a fresh 52-week low today: What should investors do now?

Market


The Ramco Cements Limited (TRCL) shares fell to a 52-week low of 657.70 in today’s BSE trading. The stock is currently trading at a market price of 670.30, having hit an intraday low of 657.7 (-3.18%), and is trading below the 5 days, 20 days, and 50 days, 100 days, and 200-day moving averages. The stock is now trading at a 40% discount from its 52-week-high.

In Q4FY22, the company reported consolidated revenue of 1,722.68 crore, up 5% year-on-year from 1,641.53 crore in Q4FY21. Operating expenses increased by 20% year-on-year, from 1,184.76 crore in Q4FY21 to 1,418.50 crore in Q4FY22. In Q4FY22, the company recorded an EBITDA of 304.18 crore, down 33% from 456.77 crore in Q4FY21. Profit Before Tax (PBT) decreased by 53% year-on-year, from 345.48 crore in Q4FY21 to 162.91 crore in Q4FY22, while Profit After Tax (PAT) decreased by 42% year-on-year, from 212.27 crore in Q4FY21 to 123.25 crore in Q4FY22. 

The company’s revenue reached 6,011 crores in FY22, owing to robust volume growth. However, the increase in cement prices was inadequate to match the increase in fuel costs, and a 20 per cent increase in diesel prices pushed up overall operating costs. Due to CoVID lockdown in May/June 2021 in the South and severe rains in Q3 in the South/East regions, the company’s sales volume may have been stronger. The 20% jump in diesel prices pushed up overall operating costs. The installation of JPM L-3 / Orissa GP raised finance costs in FY22. Owing to the establishment of a new tax system under Income Tax, the cost of debt decreased from 6.59 per cent to 5.54 per cent this year, and PAT strengthened.

For the fiscal year ending March 31, 2022, the Board of Directors has proposed a dividend of Rs.3/- per share of Rs.1/- apiece. The dividend will be paid within 30 days following the announcement of the dividend at the next Annual General Meeting, which will be held on Wednesday, August 10th, 2022. Despite its poor performance, Yes Securities has given it a buy recommendation with a target price of 1135, implying a 69 per cent upside potential from the current market price of 670.

The brokerage has said that “We trimmed our EBITDA/PAT est. by 30/40% and 16/21% for FY23/24E. We believe TRCL to generate healthy operating cash flow of Rs26.6bn and its fund ongoing capex (Rs8.5bn) also deleverage its B/S (10bn) over FY23-24E. This would aid TRCL to lower the Net Debt/EBITDA to 1.2x by FY24E v/s 2.8x FY22. Thus, we retain our BUY recommendation with a TP of Rs1135 (earlier Rs1188 on FY23E), valuing the stock at 15x EV/EBITDA on the FY24 estimates.”

Motilal Oswal has said that “TRCL should gain market share in its operating markets led by capacity expansions. We expect 11% volume CAGR during FY22-24. Though earnings are likely to remain volatile in the near term, we believe debt has peaked out and expect Net debt/EBITDA to be at 1.9x in FY24 v/s 2.9x in FY22. The stock trades at 16.5x/11.5x FY23E/24E EV/EBITDA. We value TRCL at 13x FY24E (v/s 14x earlier) EV/EBITDA to arrive at our TP of INR785 (v/s INR905 earlier). We maintain our BUY rating on the stock.”

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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