The Ramco Cements Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Volume growth masked by disruptions: FY22 volumes grew 11% YoY to 1.11 crore tons despite COVID lockdowns and a cyclone, but Q4 volumes dipped below pre-COVID levels as the company deliberately cut east sales to avoid losses.
• Cost inflation crushed margins: EBITDA per ton collapsed to ₹1,190 from ₹1,586, with EBITDA margin shrinking to 22% from 30%, because the industry could not pass on a doubling of pet coke prices and a 20% diesel spike.
• Premium mix is the margin lever: Premium product share rose to 22% (25–26% in Q4), carrying a ₹200–300 per ton EBITDA premium, with a FY23 target of 30% that would structurally lift blended realizations.
• Kurnool is the near-term catalyst: Clinker is already commissioned; the cement grinding unit and 6 MW WHRS are due by June–July 2022, pushing installed capacity past 2 crore tons and unlocking volume growth without clinker transport costs.
• What to watch next quarter: Whether the ₹40 per bag price hike needed to restore EBITDA to ₹1,300 materializes, whether Q1 FY23 volumes hit the promised 0.3 crore+ tons, and whether pet coke prices stay near the $225 guided for Q1.

Volume & Demand Dynamics

• FY22 volume story: 11% YoY growth to 1.11 crore tons, held back by a COVID lockdown in the south during May–June 2021 and heavy rains plus a cyclone in Q3 across south and east markets. Utilization still improved to 80% from 75%.
• Q4 weakness was partly self-inflicted: Volumes declined ~0.6% YoY and fell below pre-COVID Q4 FY19 levels. Heavy monsoon in Tamil Nadu, Kerala, and Andhra Pradesh lasted until end-January, but in the east, prices were so low that the company cut production in January to avoid selling at a loss. February and March dispatches recovered, with March touching almost 12.5 lakh tons.
• East market is not abandoned: The production cut was only for January and early February, not a permanent withdrawal. Management pushed back on judging the market by one weak quarter, noting prices have already improved in Q1 FY23 and demand is robust, supported by government infrastructure spending in Orissa, Bengal, and the North East.
• FY23 volume ambition: Management expects minimum 12–15% volume growth in FY23. April dispatches were almost 0.1 crore tons, May was expected better, and Q1 FY23 is guided to 0.3 crore+ tons.
• Demand tailwinds: Housing finance companies reported their highest-ever disbursements in April–May, DLF guidance was encouraging, commercial space demand is expected to rise, and infrastructure companies are receiving orders across all areas.

Dharmakrishnan: "Merely because the prices was weaker in one quarter we cannot judge the market is bad."

Margin & Cost Structure

• The fuel cost shock: Average pet coke prices doubled in FY22, and diesel prices rose 20%, raising logistics cost. The cement industry could not fully pass these increases through to customers, driving EBITDA down 17% YoY to ₹1,314 crore and EBITDA per ton to ₹1,190 from ₹1,586.
• The price hike arithmetic: Management stated that a ₹40 per bag price increase is needed to cover cost inflation, which would take EBITDA per ton to around ₹1,300. South prices have moved up only ₹10–15 per bag and east prices ₹20, leaving a significant gap.
• Partial offsets are in place: A 27 MW WHRS plant at Jayanthipuram helped partially offset power costs. The company targets 71% of electrical energy for clinker production from green sources, with a Tamil Nadu windmill converted from sale-to-board to captive consumption.
• Fuel price visibility is poor: Management declined to give near-term fuel cost guidance, citing extreme index volatility: the pet coke index swung from 146 in January to 177 in February, 248 in March, 176 in April, and 242 in May. For Q1 FY23, pet coke prices for clinker production (80–85% of output) are expected around $225.
• Premium products carry a structural margin edge: Premium products deliver ₹200–300 per ton more EBITDA than ordinary cement. The share improved from 18% in FY21 to 22% in FY22, with Q4 running at 25–26%, and the FY23 target is 30%. Management credits brand pull and customer acquisition efforts.

Dharmakrishnan: "Even if you see the index. January the index price was 146, February the index price was 177, March 248, April 176, May 242 that is the level of volatility you can see so it is very difficult to give you any guidance."

Capacity Expansion & Projects

• Kurnool is the immediate growth engine: Clinker has been commissioned, taking total clinker capacity to 1.37 crore tons per annum. The cement grinding facility and 6 MW WHRS are expected to be commissioned in June or July 2022, after which installed cement capacity will cross 2 crore tons per annum. The balance 6.1 MW WHRS and 18 MW thermal power plant are due by March 2023.
• Kurnool's strategic pivot: Originally, clinker was to be transported to east and Chennai grinding units, but high fuel costs made clinker transport less viable. The focus shifted to commissioning the cement plant at Kurnool itself, reducing logistics exposure.
• Karnataka grinding unit: A ~0.1 crore ton grinding unit is planned with capex of ₹300–350 crore and a minimum six-month timeline to start. Expected addition by FY2024. The company also won a limestone block in Karnataka at a premium of just 25.1%, well below the normal 100–150% range.
• Mathodu revival: The previously closed Mathodu cement grinding capacity is being revived, with Karnataka government approval expected in 2–3 days from the call date. Management expects 30–40% capacity utilization from 1st July, with a path to 70% by year-end.
• East grinding unit logic: No integrated cement plants can come up in Bengal, the East, or the North East due to a lack of limestone, so only grinding units are feasible. These replace cement transport with clinker transport, saving ~35% in logistics cost without increasing market capacity. The main benefit is better customer service, not a significant cost reduction, because fixed capital costs offset variable cost savings.
• Pending capex and debt: ₹1,350 crore of capex remains over the next two years, with around ₹600 crore to be spent in FY23. The company proposes to reduce debt by about ₹500 crore in FY23, including roughly ₹200 crore in working capital loan reduction. Average borrowing cost fell to 5.54% in FY22 from 6.59%.

Market & Pricing Strategy

• South pricing is volatile and opaque: Prices in the south move up and down weekly. When asked for state-wise price increases, management declined to give exact numbers, calling them misleading, and offered only approximate ranges. When pressed on why south prices are not absorbing cost inflation, management deflected.
• East pricing is recovering: Prices were weak in Q4 FY22 but have already improved in Q1 FY23. The east trade share runs at 55–60%, and non-trade sometimes delivers better realizations. The bullish outlook rests on government infrastructure spending.
• Maharashtra is on the radar: Plans to add capacity in Maharashtra exist, but the location is not yet finalized.
• Raw material security is not a concern: Fly ash and slag availability is not a problem because power and steel capacities are increasing. Grinding units are strategically located near thermal stations and steel plants across Neyveli, Tuticorin, Mettur, Ennore, Vijayawada, Vizag, Orissa, and Calcutta.

Dharmakrishnan: "See so many con call we will be understanding now. Nothing I am going to add new. See you may have attended so many investor calls you will be knowing better than me."

Non-Core & Strategic Items

• Link Logistics exit path: The business model changed from last-mile delivery to becoming a super distributor for FMCG companies on a tech-based platform. Ramco Cements will not invest any further capital and will remain an investor, aiming to sell when value rises and a buyer emerges, though the exit will take time.
• R&D on new cement types: Work is ongoing on limestone-based cement types to address CO2 and blend concerns, though a question on the company's CO2 emission level of ~742 kg per ton versus peers at 500–550 kg per ton went unanswered, with management promising to revert.

Dharmakrishnan: "We will not put, not even single paise more than what we invested."

Guidance & Commitments

Key Metrics