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Ramco Cements’ (Ramco’s) Q4FY23 EBITDA sharply increased by 40% YoY/45% QoQ to Rs4.1bn, significantly above Consensus/our estimates, owing to a beat across all operating parameters. Accordingly, blended EBITDA/ton declined 5% YoY/increased 10% QoQ to Rs878 (Emkay: Rs750). Management guided to strong volume growth of 20% YoY in FY24, subsequent to registering more than 35% growth in FY23, while benefit from the decline in fuel prices would kick-in from Q2FY24. Net debt declined Rs2.1bn QoQ to Rs43.5bn, aided by working-capital release. We expect Company’s net debt to maintain similar levels in FY24 too, owing to the ongoing capex. Factoring-in the higher volume growth and market-share gains, we raise our FY24-25E EBITDA by 7-8% and our target EV/E by one notch to 12x. We maintain HOLD on the stock, with revised Mar24E TP of Rs880/share (earlier Rs715), based on 12x EV/E.

Results Summary

Volumes (including Dry mortar) increased 47% YoY/32% QoQ to 4.7mt, led by the recent ramp-up in expansion. The decline in cement realization was restricted to 2% QoQ (+2% YoY), at Rs5,444/ton (Emkay: Rs5,377), led by likely mix change, higher OPC sales, and inclusion of dry-mortar revenues despite the sharp price drop in key markets such as Tamil Nadu and Kerala. Ramco generated negative FCF of Rs5.7bn, post working-capital release of Rs2.5bn and capex spend of Rs17.6bn. In the wake of the Rs710mn dividend payout, net debt rose Rs5.6bn YoY to Rs43.5bn as of Mar-23

What we liked: Superior volume growth; better-than-expected realization, margins.

What we did not like: High Leverage.

Key Concall takeaways: 1) Ramco is likely to continue gaining market share, as Management has guided to 20% volume growth in FY24, post registering a >35% YoY volume growth in FY23 owing to capacity additions and implementing its strategy of ‘right cement for right applications’. 2) Demand is expected to remain resilient, owing to a normal monsoon and infrastructure push by the government. 3) Clinker/cement production stood at 11.9mt/14.9mt in FY23 which implies CC ratio of 1.25x. 3) Project Updates: Utilization of clinker capacity at its Kolimigundla plant in AP has reached 83% in Q4FY23 (vs 55% in Q3FY23). RRN Line III, with clinker capacity of 1.04mt and cement capacity of 1mt, was commissioned in Mar-23. Its Odisha GU line II, with cement capacity of 0.9mt, is expected to commission in H2FY24. The company is expected to opt for line-2 expansion at Kurnool (capex of Rs8-9bn), owing to ready infrastructure; land acquisition for the Karnataka plant is expected to start soon. 4) Blended fuel consumption cost was USD178/ton in Q4 vs USD191/ton in Q3, and spot petcoke prices stood at ~USD125/ton; blended fuel consumption cost stood at Rs2.21/Kcal in Q4 vs Rs2.43/Kcal in Q3. 5) Average lead distance increased by 11kms QoQ to 310kms in Q4; while share of rail mix increased by 200bps QoQ to 12%.

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