The Ramco Cements Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Volume surge, margin squeeze: Sales volumes jumped 46% YoY as capacity and infrastructure investments paid off, but blended EBITDA per ton slipped from ₹956 to ₹917.
• Capacity unlocks growth, not just demand: The quarter’s performance validates a multi-quarter infrastructure build-out; management now targets ~20% volume growth in FY24.
• Fuel cost relief is coming, but not yet: A switch away from expensive alternate fuels hurt the current cost structure, with management promising a “big reduction” in fuel costs starting Q2 FY24.
• The expansion playbook is low-cost and organic: Incremental capex for new capacity will be “much less” than past projects and peers, setting up a potential quantum jump in returns.
• What to watch next quarter: Whether the promised fuel cost reduction materializes, the trajectory of cement prices, and any firm timeline on the Kurnool second line.

Volume Growth & Capacity

• 46% YoY volume growth was driven by four factors: available capacity, very strong demand, infrastructure created over the last 3-4 quarters to service a demand spurt, and the promotion of “right cement for right application” across nearly 12 cement types, which drove repeat orders.
• Growth was broad-based across all regions and states of operation, with no shift in market mix. Management noted that demand existed earlier but capacity was insufficient; now that capacity is in place, the company can capture it.
• The old R.R. Nagar line stays online: Management is keeping the second, less efficient line operational rather than shutting it down as previously planned. If demand slackens, it will be shut for a 3-4 month upgrade.
• Blended cement ratio held steady at ~70% despite aggressive volume growth, with only 1-2% variation possible. Management sees no major deviation from this level.

Dharmakrishnan: "4 things happened. Number 1, we had the capacity. Number 2, the demand was very strong. Number 3, we created necessary infrastructure to service this. That is in the last 3-4 quarters, repeatedly I was telling we invested so much money to create the infrastructure to service this kind of spurt in demand."

Costs & Margins

• Blended EBITDA per ton declined from ₹956 to ₹917 YoY, as cost pressures outweighed operating leverage from the volume surge.
• Alternate fuel usage was halted because its cost rose above coal, dropping the AFR share from 20% to 13% in FY23. Management is now looking for “alternate to alternates.”
• Fuel cost relief is expected from Q2 FY24 onwards, with only a small reduction in Q1. The company holds only 2 to 2.5 months of pet coke inventory when prices exceed \$100, so lower-cost fuel should flow through quickly.
• Green power is scaling up: Andhra Pradesh clinker operations already run on 70-80% green power via waste heat recovery. In Tamil Nadu, 175 MW of wind power is being converted from grid sales to captive consumption, with 60% converted and the remaining 40% expected before the wind season.
• Margin recovery depends on both cost and price, and management was non-committal on the pricing outlook, stating only that the market needs to be watched.

Dharmakrishnan: "We will not spoil the price. Definitely, we want price because we make so much efforts in expanding, in modernizing, in introducing new products. If there is no big margin then what is the point in hard work."

Expansion Pipeline & Capex

• FY24 capex is set at ₹800 to ₹850 crores, with management stating this amount cannot be reduced. Any surplus cash beyond this will go toward deleveraging.
• The expansion sequence is clear: first the Kurnool second line (infrastructure ready, only needs raw mill, coal mill, kiln, cement mill), then the Karnataka greenfield project where land acquisition has begun.
• Incremental capex is a competitive advantage: Management claims the cost to create another 0.5 or 1 crore tons of capacity will be “much less” than its own earlier capacities and industry peers, with 1 crore tons costing below ₹5,000 crores. This sets up an expectation of a quantum jump in return on investment when scaled capex is executed.
• Odisha grinding unit of 0.9 mtpa is on track for commissioning in Q3 FY24.
• Organic growth is the clear preference over inorganic, as management sees enough scope for organic expansion at very reasonable cost with good returns, while inorganic may not deliver the same.

Dharmakrishnan: "My incremental capital expenditure what is needed to create maybe another 0.5 crore or 1 crore tons capacity is going to be much less compared to my earlier capacities and also compared to anybody else in the industry."

Balance Sheet & Capital Allocation

• Debt reduction and growth must coexist: Management acknowledged the tension between deleveraging and participating in growth, noting that focusing solely on one would invite criticism on the other.
• The ideal net debt to EBITDA range is 2 to 2.5x. Once this level is approached, the next phase of expansion can begin, though management may deviate slightly depending on market growth.
• Non-core asset sales are progressing slowly: Only land qualifies as a non-core asset, and some progress has been made in finding buyers for small parcels. Proceeds can fund land acquisition for expansion.
• Limestone reserves are not a near-term concern in Tamil Nadu, with enough reserves for 30-40 years and no leases expiring before 2030. No bidding has occurred since 2014, but the company owns lands and expects to secure reserves if bidding resumes.

Dharmakrishnan: "Suppose if I look at only debt deleveraging and if I don't take part in the growth, then you'll tell me, everybody else is in growth path, you don't have a growth path. At the same time, if I don't deleverage, yes, people can say, okay, for this capacity others are having so much debt, but your debt is higher."

Demand Environment & Outlook

• Current demand is good in the individual homebuilder and infrastructure segments. Medium-term demand is expected to remain resilient due to government infrastructure spending focus, upcoming elections, and a forecast of a normal monsoon for 2023.
• New product promotion is gaining traction, with management stating the last two quarters have done an “excellent job” and expecting continued good growth and realization from this effort in coming quarters.
• Pricing discipline is a stated priority, but management deflected specific questions on current prices across operating regions, suggesting analysts do their own market checks.

Guidance & Commitments

Key Metrics