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In-line quarter; monetization of non-core assets remains key

The Ramco Cements (Ramco)’s Q1FY25 EBITDA fell 7% YoY/23% QoQ to Rs3.2bn, broadly in line with consensus/our estimates. Blended EBITDA/t beat estimates, coming in at Rs733 (Emkay: Rs685) owing to higher than expected realization, on likely better States’ sales mix. Ramco has increased its capacity target to 30mt by FY26 (26mt earlier), but retained its FY25 capex target of Rs12bn. Hence, high capex intensity will endure in FY26 too. The mgmt is looking to monetize non-core assets of ~Rs10bn within coming 12M – timely monetization will help Ramco fund growth capex/de-leverage its balance sheet; it will also be the key catalyst for a stock re-rating. Building-in lower realization, we cut FY25-26E EBITDA by 6-10% with unchanged Jun-25E TP of Rs865/sh based on 13x EV/E (earlier 12.5x), after quarterly roll-over. We retain ADD.

Result Summary

Ramco posted muted volume growth of 1% YoY/decline of 21% QoQ to 4.29mt, implying utilization of 77% in Q1FY25 (fell by 200bps YoY/1,900bps QoQ). Blended realization surprised positively, with a decline of 8% YoY/1.6% QoQ to Rs4,792 (a decline of Rs76/t sequentially) vs our estimate of Rs4,722, owing to better States’ sales mix. The company targets 30mt cement capacity by FY26 (vs 26mt earlier). Along with the ongoing clinker/cement capacity addition of 3.15mt/1.5mt for Kurnool line-2, Ramco has suggested de-bottlenecking the current facilities and adding grinding capacities at existing locations with minimal capex. FY25 capex guidance remains unchanged at Rs12bn (Q1 spend stood at Rs2.8bn). Accordingly, we expect high and back-ended capex in FY26E. Net debt increased by Rs2.8bn QoQ to ~Rs50bn as of Jun-24.

What we liked: Better than expected realization

What we did not like: Lower than industry volume growth; increase in net debt

Key catalyst: The company has taken effective steps to monetize certain non-core assets, worth ~Rs10bn, in the next 12 months. Timely monetization of non-core assets will help it fund growth capex/de-leverage its balance sheet and act as the key trigger for a stock re-rating. We have not factored non-core asset monetization in our estimates.

Key takeaways from Q1FY25 results: i) In Kolimigundla, TPP of 18MW was commissioned in Jul-24, and trials are being done. Railway siding will be commissioned during Sep-24. The company has started seeing synergies in the cost for usage of limestone mined from the lands purchased from Prism. 2) Line 2 in Kolimigundla comprising of 3.15mt clinker capacity and 1.5mt cement capacity with WHRS capacity of 15MW is scheduled for commissioning by 4QFY26. 3) The WHRS plant in Ramasamy Raja Nagar, with 10MW capacity, is up for commissioning by 4QFY25. 4) 50% of the mining land for the new project in Karnataka has been acquired so far.

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