Ramco Cement Valuation Excel Model and Intrinsic Value of Shares- BDV

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Ramco Cement Valuation : About the Company

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 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.. From here, we go ahead with Ramco Cement Valuation and Intrinsic Value of its shares.

Read more here: Ramco Cement Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
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You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Ramco Cement Valuation.

Financial Year Revenue Growth Rate
Year 1 4%
Year 2 -3%
Year 3 21%
Year 4 11%
Year 5 12%
Revenue Growth Rates: Ramco Cement Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Ramco Cement Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 4612 7752 8673 10257 11867
Free Cash Flow to Equity 11374 4176 23161 18753 22436
FCFF and FCFE values: Ramco Cement Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

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Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 11866.65
Growth Rate 5.00%
Cost of Capital 11.54%
Terminal Value 190590.56
Terminal Value: Ramco Cement Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Ramco Cement Valuation.

WACC Calculation for Ramco Cement Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Ramco Cement Valuation. (Units are INR Millions)

PV of FCFF and FCFE for Ramco Cement Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE and Terminal Value (the value of the entire firm) by the number of outstanding shares we get the per-share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Ramco Cement Valuation Units
PV in INR Million 110798
No of Shares Outstanding (In Million) 228
Intrinsic Value 485.95
Current Market Price of Share 780.00
Current Discount/Premium 61%
Intrinsic Value of the Shares: Ramco Cement Valuation

Ramco Cement Valuation and Intrinsic Share Price = INR 485.95

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References: Investopedia
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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