The Ramco Cements Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Volume surge, margin squeeze: Cement sales jumped 55% YoY as the east region fired, but EBITDA fell 17% because fuel costs tripled over 18 months and cement prices stayed weak.
• Fuel cost relief is visible but lagged: Blended fuel cost per tonne dropped from \$198 to \$178 QoQ on smarter procurement, yet the full benefit of falling pet coke prices will only hit from Q3 given a 2–3 month inventory lag.
• Kurnool is the near-term catalyst: The new clinker line is running at full tilt, grinding will commission in August, and commercial production starts by September, setting up volume and cost gains for H2.
• Cash conservation is the priority: Net debt rose ~₹400 crore QoQ to ₹4,148 crore as working capital ballooned; management deferred dry mix plants and is targeting ₹500 crore debt reduction this year.
• What to watch next quarter: Whether cement prices actually firm as management insists they must, whether Kurnool grinding ramps on schedule, and whether the promised ₹100+ crore government payment materializes to ease working capital.

Volume & Regional Performance

• East region breakout: The east contributed ~30% of Q1 volumes, up from ~18–20% in Q4 FY22, and was the main growth engine behind the 55% YoY volume jump to 0.33 crore tonnes.
• Utilization recovery: Capacity utilization improved to 68% from 44% YoY, supported by the volume surge and the restart of the previously shut Mathodu grinding unit in Karnataka, now drawing clinker from Kurnool.
• Premium push: Premium product share rose 5 percentage points QoQ to 24%; management is confident of reaching 30% in FY23.
• FY23 volume guidance: Management expects to achieve the 12–15% guided range, implying 15% volume growth for the full year.

Venkatrama Raja: "I will assure you we will make all the efforts for the further growth of this company, and we will not lag behind any of the growth in our growth path."

Margins & Cost Structure

• The margin hit: EBITDA margin collapsed to 17% from 30% YoY, driven by fuel prices that tripled over the last 18 months, a ~11% rise in diesel prices during the current quarter that pushed up both inbound and outbound logistics costs, and persistent cement price weakness.
• EBITDA per tonne holding: At ₹929, Q1 EBITDA per tonne was down only slightly from ₹956 in Q4 FY22, and management is trying to maintain that Q4 level even as input costs fluctuate.
• Fuel cost trajectory: Blended fuel cost per tonne fell from \$198 in Q4 to \$178 in Q1 because coal was procured at much cheaper rates; management expects a marginal 5–6% increase in July and August before costs decline from September.
• Pet coke tailwind: Pet coke prices have already fallen from ~\$210 to an offer level of \$185, but the benefit will only reflect from Q3 onwards because of the 2–3 month inventory lag.
• Power cost pain: Power generation cost doubled to Rs.7 per unit from Rs.3.50 previously due to the sharp rise in Indonesian coal prices; the 27 MW WHR plant at Jayanthipuram provided only partial offset.
• Wind power conversion: The entire 175 MW of captive wind power is being converted to captive consumption, which management says will save ₹6/unit versus thermal power and add another 10% to the green energy share.

Kurnool & Capacity Expansion

• Kurnool clinker commissioned: The new clinker plant has completed trial production and is already running near 100% capacity, taking total clinkering capacity to 10.36 crore tonnes per annum.
• Grinding imminent: The cement grinding facility and 6 MW WHR are expected to be commissioned by the first week of August, with commercial production for both clinker and grinding targeted by September.
• Mathodu restart: Cement grinding has already begun at the previously shut Mathodu plant in Karnataka, using clinker transported from Kurnool, giving the company an immediate outlet for the new clinker capacity.
• Karnataka mine and grinding unit: Land acquisition has begun but management expressed frustration at the lengthy procedures in Karnataka compared to Andhra, Tamil Nadu, or Odisha; the planned clinker line is sized at 7,500–10,000 TPD with a grinding unit of 0.3–0.5 crore tonnes, but no specific timeline is available.
• Maharashtra grinding unit under review: Management is having second thoughts about a Maharashtra grinding unit because the Karnataka mining lease location may allow serving Maharashtra more efficiently from there instead.

Company Speaker: "The problem is in Karnataka I never expected the procedure is so lengthy, it is not as simple as in Andhra, Tamil Nadu, or Odisha..."

Pricing & Realizations

• Pricing pressure: Cement prices remained under pressure through the quarter, and management acknowledged that industry attempts at price hikes have been rolled back.
• Defensive posture: When pressed for specific current prices versus last quarter averages, management deflected with a Sensex volatility analogy and declined to provide the number, saying only that prices "can vary so much."
• Recovery bet: Management asked investors not to be negative on pricing because "everybody is suffering from high cost," but also cautioned against optimism, framing the outlook as a waiting game on industry-wide cost pain forcing a reset.
• NSR confidence: On net sales realization, management stated "coming quarters we will bounce back" and asked not to be judged on one or two quarters.

Company Speaker: "Do not be negative also. It could change because everybody is suffering from high cost. Do not be too optimistic, do not be too pessimistic."

Balance Sheet & Capital Allocation

• Net debt rise: Net debt increased ~₹400 crore QoQ to ₹4,148 crore, driven by elevated working capital of over ₹800 crore, a level management says they never normally carry.
• Debt reduction plan: Management still expects to reduce net debt by ₹500 crore in FY23, including ₹200 crore from working capital normalization, and is expecting ₹100+ crore in government payments or subsidies in the next 1–2 months.
• Capex discipline: FY23 capex is pegged at ₹850 crore including ₹130 crore maintenance capex, with ~₹400 crore remaining to be spent over the rest of the year; FY24 capex is guided at a lower ₹550–₹600 crore as most growth projects near completion.
• Dry mix deferral: Two dry mix plants (Jayanthipuram and Odisha) have been deferred by six to nine months to conserve cash and avoid increasing borrowings, even though two other plants (RR Nagar and Salem) are ready and the Chennai plant is already operational.
• Borrowing cost: Average cost of borrowings ticked up to 5.68% from 5.50% YoY.
• Acquisition stance: When asked whether the company would evaluate acquisition offers from larger buyers, management reacted sharply, calling the question hurtful and stating the group has been in business for 70 years and is the industry EBITDA benchmark.

Company Speaker: "That is not the right question you are putting to us. We are hurt by this question."

Fuel & Power Strategy

• Coal sourcing diversification: Coal is imported from Russia and Indonesia, with multiple types of Indonesian coal used depending on price, currency value, and whether it is destined for the thermal plant or the process.
• Fuel cost per kilo cal stable: The cost per kilo cal remained almost constant compared to Q4.
• WHR delays: Waste heat recovery commissioning has been delayed by one or two months, partly due to contractor delays and partly by management choice because running without WHR may not be economical in the current severe cost environment.
• Kurnool thermal power plant: Expected to be commissioned by March 2023, adding further captive power capacity.
• Wind power subsidiary: A subsidiary wind farm of 39.8 MW is used by group companies with immediate payment, rather than selling to the grid where payment takes one year or two years.

Guidance & Commitments

Key Metrics