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Mixed top-line growth:

Ramco Cements Q3FY24 numbers were below expectation with revenue at Rs 2,110.9cr, higher by 4.9% YoY driven by volume growth of 9.9% YoY of 4mn tons while realization declined by 4.5% QoQ to Rs 5,277/ton. However, sequentially, revenue declined by 9.8%, led by de-growth in volumes by 13.2% while realization grew by 3.9% QoQ. Demand remains impacted which eventually squeezed volume growth due to extreme heavy rainfall and the subsequent flooding as the cyclone, Michaung affected Southern regions such as Tamil Nadu and Andhra Pradesh as well as lower demand due to festive holidays in the East.

Margin saw strong improvement:

Its gross profit grew by 2.8% YoY while down by 6.1% QoQ to Rs 1,782cr while margins was at 84.4%, down by 174bps YoY but higher by 334bps QoQ due to volatility in the raw material prices. Further, its power & fuel cost declined by 21.4% YoY/11.7% QoQ to Rs 552.2cr which aided EBITDA to improve YoY by 40.1% but was marginally down by 2.1% QoQ and margins was up by 471bps YoY/148bps QoQ. Additionally, EBITDA/ton improved by 25.7% YoY/11.5% QoQ while total cost/ ton declined by 9.7% YoY but increased by 2.1% QoQ to Rs 4,286/ton and fuel cost/ton came in at Rs 1,381/ton, declined by 28.4% YoY and marginal up by 1.8% QoQ. PAT grew by 28.3% YoY but declined by 16.2% QoQ with PAT margin at 4%, up by 72bps YoY and down by 31bps QoQ due to increase in finance cost & depreciation cost due to commissioning of Kolimigundla, R R Nagar Line III and 2 Dry Mortar plants

Capacity expansion on cards:

Ramco Cement announced that by FY26, it would expand the cement capacity by 3 MTPA and double the clinker capacity in Kolimigundla to 6.30 MTPA with 15 MW of WHRS at an estimated project cost of Rs 1,250cr. Further, they have plans to carry out debottlenecking of cement capacity aggregating to 1 MTPA, which will be carried out in FY25. So with these, the installed capacity of the company would reach 19 MTPA for clinker and 26 MTPA for cement by FY26. Besides, It plans to establish a WHRS of 10 MW capacity at its Ramasamy Raja Nagar plant, at a cost of Rs 153cr by March 2025 and the installed capacity of WHRS would increase from 43 MW to 53 MW by FY25.

Outlook & Valuation:

Ramco Cement results were below expectation on top-line as volumes remained impacted due to heavy rainfall & floods while margins saw improvement. Going ahead, industry tailwinds will aid improvement of demand meanwhile, the management plan is to focus on the right product for right application, improve utilization as well as increase usage of green energy to aid top line and margin expansion. Additionally, its capacity expansion plan and focus on premium products will bode well for growth. On the financial front, we have estimated its revenue/EBITDA to grow by 15.6%/25% CAGR over FY23-26E and have maintained a Buy rating with the target price to Rs 1,170.

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