Ramco Cements Ltd reported a surprising 5.5 million tonnes in sales volume for the March quarter (Q4FY24), up 17% year-on-year. This growth, which surpassed the industry average of 12%, suggests the company is gaining market share. However, that’s where the good news ends.
Like many others in the industry, Ramco’s prices fell in Q4, especially in its main markets in south and east India. According to a Nomura report, Ramco’s blended realization dropped by 8% sequentially, compared to a 5% sequential drop for the industry.
Ramco’s management expects strong demand after the general elections, but prices remain low in key markets, except Odisha. As a result, several brokerages have lowered their earnings forecasts for FY25 and FY26. Centrum Broking has cut its EBITDA estimates for these years by 15% and 12%, respectively.
The entire cement sector is struggling with low prices, but Ramco has additional problems affecting its earnings growth. One major issue is capital expenditure (capex). Ramco initially planned for ₹800-₹850 crore in capex for FY24, which later increased to ₹1,650 crore. Including maintenance, the total capex reached ₹1,922 crore.
Centrum notes that Ramco has overspent on capex over the past four years, leading to lower return ratios. For FY25, the management has reduced the capex guidance from ₹1,700 crore to ₹1,200 crore, but this is still high.
Additionally, net debt rose to ₹4,822 crore by the end of March, and the average cost of debt for FY24 increased to 7.70% from 6.35% in FY23.
With ongoing capacity additions, significant debt reduction seems unlikely in the near term. The company plans to double the clinker capacity in Kolimigundla, Andhra Pradesh, to 6.30 million tonnes per annum (mtpa) and the cement capacity to 3 mtpa, with a 15 MW waste heat recovery system. This expansion is set to be completed by FY26. By then, Ramco’s total installed capacity will reach 19 mtpa for clinker and 26 mtpa for cement.
On the valuation front, Ramco’s stock trades at an FY25 EV/EBITDA multiple of around 12 times, according to Bloomberg data. While this is lower than some south-focused and pan-India cement makers, the discount is not very appealing.
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