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The Ramco Cements reported healthy operational performance in Q2FY24, with EBITDA coming 21-22% higher than Street/our estimates. EBITDA increased 2x YoY/17% QoQ to Rs4bn, with EBITDA/t of Rs865. Volume growth of 39% YoY was robust at 4.6mt (Emkay est: 4.2mt). Overall cost/t declined 14% YoY/5% QoQ to Rs4,188, with the major part of savings owing to lower RM+P&F costs (down Rs201/t QoQ). Net debt further increased by Rs6bn QoQ to Rs50bn, as capex intensity saw a significant rise in H1FY24 (Rs12.5bn; also includes the land-acquisition deal from Prism Johnson). Adjusting for the higher capex, we expect net debt to broadly track a similar range till FY25. Building-in the Q2 beat and recent price-hike, we raise FY24E-26E EBITDA by 2% and revise Sep-24E TP to Rs990/sh, based on 13x EV/E (earlier 12x); retain HOLD.

The Ramco Cements: Financial Snapshot (Consolidated)

Result Summary

Ramco registered healthy volume growth of 39% YoY to 4.6mt, as the company continued to gain market share. Blended realization declined 6% YoY/3% QoQ to Rs5,053, owing to weak prices in TN and likely volume push. However, the impact of the same was negated by a decline in cost/t by 13% YoY/5% QoQ to Rs4,188. Besides the decline in fuel cost (Rs1.75/kcal vs. Rs2.03Kcal in Q1FY24), sharp increase in share of green power (up 900bps QoQ to 38%), and captive usage of wind energy resulted in RM+P&F cost reducing by Rs201/t QoQ in Q2FY24. The ensuing EBITDA/t grew 56% YoY/ 9% QoQ to Rs865 (Emkay: Rs780). Company acquired limestone mines in AP and Karnataka for augmenting its limestone reserves, post which capital outflow significantly rose to Rs9.4bn in Q2FY24. Consolidated FCF generation stood at a negative Rs5.5bn, post working-capital release of Rs502mn and capex spend of Rs12bn in H1FY24.

What we like: Industry-leading volume growth and beat on profitability

What we do not like: Increase in net debt

Key takeaways from the result: i) Management mentioned that the Kurnool line-2 (~2.5mt) will remain its priority and which it can commission in 12-15 months post capex announcement of <USD40/t. ii) Company has guided for capex of Rs16bn in FY24, which implies capex of Rs3-3.5bn in H2FY24. iii) The 0.9mt GU in Odisha is expected to be commissioned in Jan-24. iv) Net debt stands at Rs49.7bn, as of Sep-23; the management expects this to be the net-debt peak. v) Price-hikes in the South have been absorbed in Oct-23 and broadly sustained. vi) The management has guided for volume in H2FY24 to be similar to that recorded in H1FY24 (~9mt), implying 8% YoY growth in H2FY24. vii) Expects share of green power to improve 40%/45% in FY24/FY25, respectively. viii) P&F cost/t is likely to be similar on QoQ basis in Q3, as lower wind power benefit will be offset by the higher WHRS usage. ix) In Kolimigundala, the 3MW WHRS was commissioned in Aug-23. TPP of 18MW will be commissioned in Dec-23, and railway siding in Jun-24. Two units of dry mortar plants, in AP and Odisha, will be commissioned during Dec-23.

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