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Ramco Cements stock under pressure after June quarter volumes disappoint

Ramco's volumes are likely to get a boost from increased clinker capacity, but analysts caution that superior volume growth will come at the expense of profitability as pricing in its key markets is poised for a correction. Photo: BloombergPremium
Ramco's volumes are likely to get a boost from increased clinker capacity, but analysts caution that superior volume growth will come at the expense of profitability as pricing in its key markets is poised for a correction. Photo: Bloomberg

  • While Ramco Cements has managed to sail through the June quarter, analysts are wary about demand outlook for the south, which is a key market for the company

Ramco Cements Ltd reported a higher-than-anticipated fall in sales volumes in the June quarter. On a year-on-year (y-o-y) basis, volumes fell around 11% due to the prolonged lockdowns in its key markets of Tamil Nadu, Kerala and Karnataka. On a sequential basis, the impact on volumes was more pronounced with a 33% decline.

However, the sharp increase in realisations due to the pricing discipline in the region, compensated for lower volumes. On a sequential basis, realisations grew 13% to 5,739 per tonne.

Reacting to the earnings, the stock fell more than 2% on the NSE in Wednesday's opening trade.

While Ramco Cements has managed to sail through the June quarter, analysts are wary about demand outlook for the south, which is a key market for the company.

"We believe that demand growth in south India will lag all-India growth given the already high cement consumption in the region and the pronounced impact of COVID in these states," analysts at Nirmal Bang Securities Ltd said in a report. So, the company will have to seek growth in east India, which is relatively less remunerative to the company, added the report.

It should be noted that company's volumes are likely to get a boost from increased clinker capacity, bu analysts caution that superior volume growth will come at the expense of profitability as pricing in its key markets is poised for a correction.

As far as realisations are concerned, analysts caution that given the lower utilisation levels in south India and increased supply in the east, cement realisations for the company can be volatile and difficult to predict.

Against the backdrop, the stock's valuations seem expensive. The stock trades at an EV/Ebitda of 14 times, a significant premium to mid-cap peers. EV stands for enterprise value. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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