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The Ramco Cement Ltd (TRCL) reported marginally weak set of results as reported revenue/EBITDA came in 4%/3% below estimate. Cement volumes at 3.97mn mt came in 6% below our estimate owing to rains/floods in key markets of the company. Bigger surprise was on capex front wherein the company upgraded capex guidance for FY24 once again and kept capex intensity for FY25 also higher at Rs17.5bn. Strong volume growth exhibited by the company over the past 6-7 quarters is likely to be normalized as high base catches up and utilizations inch up. Given the heightened capex, leverage is expected to remain elevated with debt:EBITDA expected to remain above 3x. We have cut our estimates marginally for FY25/FY26 but increase our capex estimate based on revised guidance. Post revision, our new TP stands at Rs874 (Rs970 earlier) based on 12x Sep25 EV/EBITDA. We maintain our Reduce call on the stock.

3QFY24 result highlights

Revenue at Rs21bn is up 4.8% YoY and 3.9% below of our estimate. Cement volumes at 3.92mn mt are up 7.7% YoY and 6.3% below our estimate. Cement realization at Rs5,377/mt is up 4.6% QoQ and 2.6% above our estimate. Operating cost/mt declined by 9.5% YoY to Rs4,368/mt. Power & fuel cost/mt reduced by 26.8% YoY but slightly inched upwards by 2.3% QoQ. Blended fuel consumption cost was at Rs1.64/k cal as against Rs2.43/kcal last year. EBITDA as a result, came in at Rs3.9bn, up 38.9% YoY. EBITDA/mt came in at Rs1,009/mt vs our expectation of Rs973. Depreciation and interest costs are higher on account of commissioning of Kolimigundla integrated unit, R R Nagar Line III and Dry Mortar Plants.

Capex intensity continues to be high

TRCL had earlier guided for capex of Rs8bn in FY24 which was later increased to Rs16bn in last quarter. The company has further guided that capex for FY24 will be Rs20bn and for FY25 at Rs17.5bn. Apart from capacity addition, higher capex is for acquisition of limestone mine from Prism and land acquisition costs for the Karnataka project. As a result, we now expect that debt will remain higher through FY26 as capex is higher than OCF for the company. The company has planned to double the clinker capacity in Kolimigundla to 6.30mn mt and cement capacity to 3 MTPA with 15 MW of WHRS at an estimated project cost of Rs.12.5 bn. This expansion is scheduled to be commissioned in FY26. The aggregate installed capacity of company would reach 19mn mt for Clinker and 26 mn mt for cement by FY26. The aggregate WHRS capacity would further increase to 68 MW by FY26.

Super normal volume growth phase largely over

Kurnool plant which has driven volume growth for the company over the past 6 quarters has reached full utilization. As a result, we expect volume growth to remain relatively lower in FY25. We are building in 10% volume growth for the company in FY25 but we believe it could turn out to be lower given the election related slowdown in demand.

Maintain ‘Reduce’ with revised target price of Rs874

We have marginally tweaked our assumptions/estimates for FY24 and FY25 and our EBITDA estimates are down by 2-4%. However, our capex assumption has increased substantially based on revised capex plans of the company.  We value TRCL based on 12x EV/EBITDA (unchanged) to arrive at our revised TP of Rs874 (Rs970 earlier). Our Reduce rating stems from the fact that the company has overspent on capex over the past 4 years resulting in lower return ratios and weak pricing on historically strong markets of Tamil Nadu and Kerala for the company. Higher pricing and volume growth in south remains key risk to our call.

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