The Ramco Cements (formerly Madras Cements Limited) is a company of the Ramco Group, a business conglomerate based in Chennai. The company along with cement produces ready mix concrete and dry mortar products and operates wind farms. It manufactures and markets Portland cement, blast furnace slag cement, white cement and Pozzolana cement.
The company’s shares have 52 weeks price band of INR 884-455 and a total market capitalization of INR 169 billion which makes it a Large-Cap company. The shares have a P/E ratio of 31 and a dividend yield of0.56 %
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ☆ ☆)
The cement business does not have a highly distinguished product, so operational efficiency gives price dominance in the market. The cement manufacturing process is such that the cost of electricity and transport comes to around 35% of the total cost. Ramco cement is the 5th largest cement producer in the world and the most popular brand in South India. It also has a rapidly growing presence in East India.
On the capacity and scale size, the company has 5 Integrated Cement Plants 12.49 MTPA capacity, 5 Grinding Plants with 6.30 MTPA Capacity, Wind Farms with 125.95 MW Capacity and Thermal Power Plants with 175 MW capacity. This overall along with a wide distribution network of 1000+ large dealers and 1,00,000+ retail outlets pan India gives a good economic moat to the company. Therefore this category gets only 3 stars in RAMCO Cement fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ☆)
The Company’s main product is portland cement, which is manufactured across its 10 state-of-the-art production facilities, including integrated cement plants and grinding units. They also produce Ready Mix Concrete and Dry Mortar products, alongside operating one of the largest wind farms in the country. The company also has a market presence of over 6 decades and employes 3,300+ employees. Ramco Supercrete is a specially formulated blended cement manufactured as per IS 1489 which has been used to make High-Performance Concrete. This has given the company a good hold on the market and differentiated their products.
Mr P R Venketrama Raja is the Chairman and Managing Director of the company and is a veteran in the cement industry. Further, the company is known for its values and creating shareholders wealth over the years. There are also no previous cases of any Principal-Agent conflict in the near future. Therefore this category gets 4 stars in RAMCO Cement fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ☆)
The revenue has shown a stable growth rate of over the last 10 years. The operating and Net income has also shown good improvement over recent years. The capital expenditure has also been increasing and the working capital has been negative due to the nature of business. This overall shows good growth for the company in the past as well as in the coming years. Therefore this category gets 4 stars in RAMCO Cement fundamental analysis.
4. Profitability Ratios (★ ★ ★ ☆ ☆)
The gross margins of the company have been varying due to the nature of demand. There are also some effects because of the economies of scale and higher asset utilization. The fluctuations in the margins are due to the cyclic demand of the market and are normal in cement companies. Therefore this category gets 3 stars in RAMCO Cement fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ☆ ☆)
The Capital expenditure has shown some improvement but the net income margin has declined in recent years. The Free cash flow has remained positive and the operating cash flow growth has shown a nominal decline. Overall the company has seen a slight deterioration of its cash position. Therefore this category gets 3 stars in RAMCO Cement fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ☆ ☆)
The current ratio has shown some decline in recent years and has been below the minimum requirement of 1. This shows the company has a deficit of current assets over current liabilities. The financial leverage and debt to equity have declined over the years and the profitability margins have also deteriorated. This improves the solvency of the company. Therefore this category gets 3 stars in RAMCO Cement fundamental analysis.
7. Efficiency Ratios (★ ★ ☆ ☆ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the efficiency has not shown any significant improvement over the years. The payables period has gone up significantly from 47 days to 56 days. The receivables period has gone up slightly and days inventory has also decreased from 136 days to 119 days. However, the company did not manage to achieve a negative cash conversion cycle, which is an indicator of poor efficiency. Therefore this category gets 2 stars in RAMCO Cement fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ☆)
The company has shown improving valuation, this means the market has started pricing their shares at higher price multiples. This is because of expansion plans and new projects . The company has also shown significant growth prospects in the coming years with the diversification in new lines of businesses and new product offerings in the premium segment. Therefore this category gets 4 stars in RAMCO Cement fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ☆ ☆)
The leverage ratio has declined over the years. This shows a decrease in debt financing for expansion. The company has also shown declining net profitability. The operating margin has also reduced and interest burden ratio has increased. The tax efficiency has also been stable. Overall this has made the ROE almost stable. Therefore this category gets only 3 stars in RAMCO Cement fundamental analysis.
10. Future Prospects (★ ★ ★ ★ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The COVID-19 lockdown will have a severe impact on cement consumption due to the halt on construction sites. However, this is only a temporary situation and construction is expected to resume especially for large projects after the lockdown. The retail cement consumption will show some decline in FY2021.
- The management expects a slowdown in the builder and commercial segments and remains cautious about the demand outlook. The company is also well-positioned in the rural markets which are currently looking more promising than urban markets.
- The manufacturing costs is likely to remain subdued due to lower petcoke and coal prices. The management can look for selective price cuts for stimulating demand. The company will also cut down on its Advertisement and Sales promotions budget.
The company still remains one of the trusted brands across the South Indian states and also has decent retail consumption. The management has also taken a few steps to improve the financial position of the company. Therefore this category gets only 3 stars in RAMCO Cement fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
RAMCO CEMENT SHARES (3.2/5)
Therefore it is a 3-star stock
★ ★ ★ ☆ ☆
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|RAMCO Cement Shares|
|Economic Moat||★ ★ ★ ☆ ☆|
|Business & Management||★ ★ ★ ★ ☆|
|Growth Ratios||★ ★ ★ ★ ☆|
|Profitability Ratios||★ ★ ★ ☆ ☆|
|Cash Flow Ratios||★ ★ ★ ☆ ☆|
|Liquidity & Solvency||★ ★ ★ ☆ ☆|
|Efficiency Ratios||★ ★ ☆ ☆ ☆|
|Valuation Ratios||★ ★ ★ ★ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ☆ ☆|
|Future Prospects||★ ★ ★ ☆ ☆|
|Overall Fundamental Rating||★ ★ ★ ☆ ☆|
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