The Ramco Cements Limited (TRCL of Ramco Group), a popular name especially in the south, is the fifth largest cement producer in the country.
The stock had fallen by 35% from May 2018 –October 2018 due to – Lower realization per tonne combined with elevated levels of input costs which has kept margins under check since 2018.
In Q3FY19, revenue increased by 14.6% yoy on the back of strong volume growth of ~21% yoy aided by healthy demand from their key markets in Tamil Nadu & eastern regions. Increase in power & fuel (Pet coke & Coal) cost per tonne and lower realization margins impacted EBITDA Margins by 460 bps. However, pet coke and coal prices have begun to soften which will benefit the company in the next quarter.
In February, cement companies had increased prices by 40-50 per bag. According to latest reports, cement prices are likely to increase further by 20-25 per bag in this month.
Going forward, the company is likely to benefit from – A) Increase in demand for cement on account of increased spending by government on low cost housing & irrigation projects in South India (TRCL’s key market), B) Improved capacity utilization & capacity expansion, C) Reduction in freight cost in Odisha, and D) Lower input costs which will improve EBITDA Margins.
The company manages its cash flow efficiently – since FY2015 the management has constantly reduced its debt thereby improving the debt to equity ratio from 1 in FY15 to 0.3in FY18. The RoE & RoCE is 14% and 16% respectively. They have also outperformed the Basic Materials industry which returned -19.4% over the past year.
Ramco cements corrected from the highs of 850 odd all the way to 547. The fall halted at the Fibonacci confluence zone of 547-560 and tested the fib confluence at 662-680 and pulled back to the support at 547-560. In the same zone we also had a trend line support and hence a good support. The moving averages on the RSI has given positive crossover and that’s very positive. The stock has broken the lower top lower bottom formation and hence the trend has turned positive with the break of the Fibonacci confluence zone at 662-680. A weekly close above the zone will confirm the uptrend. The break of the price resistance has come with a spike in volumes an indication that the bulls are taking charge. Therefore a 10 to 15% move is definitely on the cards from the current level of 680.