HDFC Securities has maintained 'Neutral' on Ramco Cements with target price of Rs 255 as against current market price (CMP) of Rs 275 in its report.
Commenting on the investment rationale, the stock broker said, ''Ramco Cements (TRCL) reported an EBITDA/t (excl other operational income) of Rs 300/t (vs. est. Rs 557) led by weak realizations (Rs 4,090/t, -2.3% YoY, -5.4% QoQ) and tepid volumes (2.25 mT, +1.7% YoY). For FY14, EBITDA/t (excl OOI) stood at Rs 523, which lags peers as prices in South have remained weak due to overcapacity (TRCL TTM utilizations at ~70%).
We believe TRCL is best poised to capitalize on an expected demand revival in South led by resolution of Telangana issue and overall infrastructure growth in the country. Despite setbacks on pricing, TRCL is a proven cost leader. Its execution capabilities are second to none in the industry. Further, its excess grinding capacity (15.5 mTPA vs 12.5 nameplate) gives it the ability to target end-markets flexibly.
However, valuations at 9.3/7.3x FY15/16 EV/EBITDA and US$ 130/t (12.5 mTPA) are rich. We value the operations at 7.0x FY16 EV/EBITDA (US$110/t). Maintain Neutral with a TP of Rs 255/sh.''
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