Ramco Cements gets Tamil Nadu tax relief, but competition limits earnings upside

Investment View and Tax Relief

In its August 25, 2026 company update on Ramco Cements, ICICI Securities retained its HOLD recommendation and unchanged target price of Rs 942. The cessation of Tamil Nadu's Mineral Bearing Land Tax of Rs 160 per tonne of limestone, effective August 22, 2026, provides much-needed cost relief for the company. However, ICICI Securities considers the development only sentimentally positive because the benefit was largely incorporated in its estimates and does not resolve broader concerns relating to competition, returns and leverage.

Impact of Tamil Nadu Mineral Tax Cessation

Tamil Nadu represents about 51 per cent of Ramco Cements' total clinker capacity of about 16 mtpa. According to the company, the levy, imposed from April 4, 2025, resulted in additional payments of about Rs 1,720 million in FY26, equivalent to about 12 per cent of EBITDA or Rs 91 per tonne, and about Rs 791 million in FY27 to date.

The tax cessation followed the proposed MMDR Amendment Bill 2026, which restricted state governments from imposing levies except under conditions prescribed by the central government. ICICI Securities notes that the change was broadly expected because the Bill had already been introduced in the Lok Sabha and passed by the Rajya Sabha.

Pricing Environment and Operating Outlook

The original tax imposition prompted a sharp cement-price increase in South India in April and May 2025, with prices rising by more than Rs 50 per bag or over 15 per cent. Ramco Cements' realisation increased by over 11 per cent quarter on quarter in Q1 FY26. However, elevated competitive intensity caused those price increases to be rolled back by Q3 FY26, and regional cement prices have remained volatile.

Consequently, ICICI Securities sees limited scope to raise its FY28E EBITDA per tonne forecast of Rs 833, despite the removal of the levy. Ramco Cements reported EBITDA per tonne of Rs 666 in Q1 FY27 and Rs 671 in Q4 FY26.

Financial Forecasts

ICICI Securities' forecasts and FY26 actuals are summarised below:

The projected FY28E recovery reflects EBITDA growth of 35.6 per cent. Nevertheless, return metrics remain modest, with ICICI Securities forecasting RoCE of 6.4 per cent and RoE of 7.3 per cent.

Valuation and Target Price

ICICI Securities retains a relatively rich 13x March 2028E EV/EBITDA valuation multiple. Applying this multiple to FY28E EBITDA of Rs 19,824 million gives an enterprise value of Rs 2,57,706 million. After deducting estimated net debt of Rs 35,127 million, the implied equity value is Rs 2,22,579 million, or Rs 942 per share based on 236 million shares outstanding.

Key Concerns and Risks

The broker's concerns include low RoE of 3 to 7 per cent, FY27E net debt to EBITDA of 2.4x, industry-wide competition and resurgent global fuel costs.

Key upside risks:

• A sharp increase in cement prices.
• A sharp decline in fuel costs.

Key downside risks:

• A sharp decline in cement prices.
• A major increase in fuel prices.