The Ramco Cements Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Volume-led earnings surge: Cement sales jumped 38% YoY to 0.46 crore tons, driving EBITDA to more than double and margins to expand 700 bps, as power and fuel costs collapsed.
• Cost transformation from green power: Power and fuel cost per ton fell sharply to Rs.1,358 from Rs.1,989 YoY, helped by converting wind power to captive use and a full quarter of WHRS benefit, pushing the green power share to 38%.
• Debt peaks here, deleveraging begins: Net debt touched Rs.4,966 crores, which management calls "the maximum debt"; the focus now shifts to deleveraging, though H2 repayments may undershoot the Rs.400-500 crore ambition.
• Expansion pipeline is cheap and fast: A second line at Kurnool, where most civil work is already done, can be built for \$40-50 per ton in 12-15 months, far below the \$120-130 per ton going rate for inorganic deals.
• What to watch next quarter: Whether the October-November price hikes hold through the quarter, the pace of debt reduction now that the capex cycle is cresting, and any board approval for the Kurnool second line.

Volume & Demand Environment

• Broad-based volume growth: Cement sales grew 38% YoY to 0.46 crore tons, with strong demand across both trade and non-trade segments and no material difference in realization between them.
• South dominates, east contributes: The south accounted for 80% of the sales mix, the east 20%, with the company focusing on the right cement for the right application, which makes certain infrastructure projects prefer its brand.
• Infrastructure demand is election-proof: Management's thesis is that recently started infrastructure projects cannot be stopped for elections because halting them would create NPAs in the banking system that multiply the 2014 problem by 3-4 times, citing the Chennai-Bangalore expressway and metro projects in Madurai, Trichy, and Coimbatore as examples.
• H2 volume to match H1: First-half volume growth of 30%+ is expected to be repeated in the second half, possibly a little more, with a full-year target of 1.8 crore tons minimum, implying 18%+ growth.
• South growth thesis is a long bet: Management believes the south will return to double-digit growth, absorbing Ramco's capacity, and that in 15-20 years only the north and south will produce cement predominantly while other regions consume from these two.

Management: "In my view, the glory of south will come, where we will have double-digit growth. Once the double-digit growth comes, then whatever growth possibility by Ramco Cement can be absorbed in the market."

Costs & Margins

• Power and fuel cost collapsed: Power and fuel cost per ton fell to Rs.1,358 from Rs.1,989 YoY, driven by three factors: conversion of wind power from sale to 100% captive use from June 1 (saving ~Rs.1.50 per unit), the full benefit of WHRS, and lower coal prices.
• Green power share surged: Green power usage rose to 38% from 22% YoY, with a trajectory to 40% in 2024 and 45% in 2025 from existing assets, and a potential 50-52% by end of 2025 if a planned 14-15 MW WHRS addition in Tamil Nadu crystallizes.
• AFR usage dropped on coal-price math: AFR share fell to 7% from 13-14% because coal prices dropped from \$200 to current levels while AFR prices did not fall, making AFR temporarily less attractive.
• Blended EBITDA per ton nearly doubled: EBITDA per ton rose to Rs.894 from Rs.575 YoY, with the margin expanding to 18% from 11%, though interest and depreciation costs also rose on new capacity commissioning.
• Premium product share inched up: The share of premium products improved to 28% from 25% YoY, driven by application-based cements like Ramco Supercrete for individual houses and OPC for infrastructure projects.
• Wind power seasonality is a known drag: Wind power is not available in H2, but the full benefit from WHRS will be realized since certain WHRS units were commissioned only part of the year, so the Q2 power and fuel cost per ton can be taken as a run rate for Q3.

Expansion & Capex

• Kurnool second line is the clear priority: The project can be delivered in 12-15 months from board approval at a cost of \$40-50 per ton because most civil work is already incurred: clinker silos for 150,000 tons, cement silos, packers, and stacker reclaimers are already in place, so only equipment and WHRS are needed.
• Cement capacity will rise before clinker: The Orissa grinding unit expansion from 0.9 MTPA to 1.8 MTPA is expected in January 2024, and unused raw mills at factories like Jayanthipuram can be converted into cement mills with modest conveying-equipment investment, taking total cement capacity from 2.2 crore tons to 2.5 crore tons.
• Karnataka is the next frontier, but distant: A mining asset was acquired in Karnataka and land purchases are underway, but the project may only start in 2025-2026 because land acquisition and clearances will take a minimum of 2-3 years.
• Limestone reserves augmented: The company purchased limestone-bearing lands in Andhra Pradesh and Karnataka, adding 14 crore tons of reserves, with most of the acquisition in Kurnool adjacent to existing operations and mining leases valid up to 2050.
• Capex is cresting: FY24 capex is around Rs.1,600 crores, but FY25 ongoing-project capex drops to only Rs.200-250 crores, with additional projects to be approved by the board separately and normal maintenance capex of Rs.100-200 crores.
• Organic beats inorganic on cost: Management sees organic expansion in its own areas at \$40-50 per ton as far cheaper than inorganic expansion at the \$120-130 per ton going rate, and when pressed on concentration risk, argued the south growth thesis makes diversification less urgent.

MF Farooqui: "Most of the civil cost is already incurred. For example, what is needed? Silos. Clinker silo we have for 1,50,000 tons. In other plants, we have 30,000 tons to 40,000 tons. There is no need for clinker silos, cement silos, investment in packers and investment in stacker reclaimer for raw materials for second line."

Pricing & Realization

• Prices improved through the quarter: October saw a significant price increase versus Q2, and the November price increase was sustaining as of the call date, with management planning further increases depending on market conditions.
• Tamil Nadu pricing defended: Management pushed back on the suggestion that Tamil Nadu prices were lower than Andhra and Telangana 4-5 months ago, stating that for Ramco's brand and leading brands, Tamil Nadu prices were never lower, and current pricing is much better than the beginning of Q2.
• No volume-versus-pricing trade-off disclosed: When asked how the company decides between pushing volume or price, management declined to answer, calling it a "very dynamic thing based on market-based factors" and saying nobody can state a particular strategy.
• OPC is not necessarily worse: The overall clinker-to-cement ratio is 1.3x or lower because of premium products and 40-50% OPC sales in East India, but special OPC can give better realization than blended cement even after accounting for the clinker factor.

MF Farooqui: "These are very hypothetical questions. You will be knowing better than us, because already many earning calls you might have attended."

Balance Sheet & Leverage

• Debt has peaked: Net debt stood at Rs.4,967 crores as of September 30, 2023, and management stated unequivocally that "this is the maximum debt" and the company will not go beyond this level.
• Deleveraging ambition tempered: The company will focus on deleveraging, but Rs.400-500 crores of repayment may not be possible in H2, and the ideal net debt-to-EBITDA target is 2x.
• Interest and depreciation still rising: Interest cost was Rs.117 crores and depreciation Rs.157 crores in Q2, up due to the commissioning of the Kolimigundla Integrated Unit, RR Nagar Line-3, and dry mortar plants, with another Rs.10 crores quarterly increase possible and full-year FY24 depreciation projected at Rs.640 crores.
• Land purchase cost undisclosed: When asked to quantify the land purchase amount within the Rs.1,225 crores first-half capex, management declined, saying "Sorry, I cannot share the details now."

MF Farooqui: "This is the maximum debt. We will not go beyond this."

Guidance & Commitments

Key Metrics