The Ramco Cements Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Volume hit by weather, price recovery expected: Q3 volumes fell short of plan due to cyclones and holidays, but management is confident prices will rebound and guided Q4 volumes of 0.5 crore tons.
• Capex guidance revised up again: FY2024 capex raised to Rs.2,000 Crores (from Rs.1,600 Crores), driven by de-bottlenecking and accelerated land acquisition; FY2025 guided at Rs.1,700 Crores.
• Net debt ceiling held at Rs.5,000 Crores: Management is "very confident" net debt will not exceed this peak, with future capex funded predominantly through internal accruals.
• Kolimigundla expansion anchors medium-term growth: A Rs.1,250 Crore project to double clinker and cement capacity, targeted for FY2026, leverages existing infrastructure for a lower second-phase cost.
• What to watch next quarter: Whether Q4 volumes hit the 0.5 crore ton target, any sign of cement price recovery, and progress on Bommanahalli land acquisition given management's refusal to disclose cost details.

Volume & Demand

• Q3 miss explained: Planned volume of 0.45 crore tons was not achieved because core Southern markets were underwater for ~15 days from a cyclone, compounded by general monsoon and holidays (Pooja, Diwali) in East and South. Despite this, YoY growth was achieved.
• Regional growth: Volumes grew in all markets except West Bengal, with Q3 growth at 10% and nine-month growth at 25%.
• Q4 target: Management is confident of doing 0.5 crore tons in Q4, which would bring full-year FY2024 volume to 1.75 crore tons.
• FY25 volume ambition: Management would like to increase volume by another 0.2 to 0.25 crore tons, targeting 1.9 to 2 crore tons for the full year. Serving capacity can go up to 2.2 crore tons.
• Premium products share: Contrary to an analyst's claim of a decline, management stated the premium share improved to 27% for both Q3 and the nine-month period.

Management: "Prices have corrected very sharply... we are confident that prices will come back."

Pricing & Costs

• Cement prices under pressure: Prices were under pressure during the quarter, with sharp corrections noted. Management expressed confidence in a recovery but declined to give proper guidance, citing volatility where some markets have gone up and some down.
• Power cost benefit: Reduction in fuel prices and a change in utility of wind power sales to captive use helped reduce overall power cost. The wind power benefit was only captured for three quarters because the shift started in July; the full benefit will accrue next financial year.
• Wind power dynamics: Power generation normally occurs between May 15th and September 15th, with a normal PLF of 25% that will not increase.
• Kcal cost outlook: Expected to remain the same or come down marginally in Q4; management advised assuming the same cost per ton.
• Other expenses: The per-ton increase appears higher due to lower volume in the quarter. The absolute increase was ~₹30 Cr YoY and only ₹11 Cr sequentially, with no one-off items.

Capacity Expansion & Projects

• Kolimigundla doubling: Clinker capacity to rise to 6.30 MTPA and cement capacity to 3 MTPA, with a 15 MW WHRS, at an estimated project cost of Rs.1,250 Crores. Scheduled for FY2026, the second phase benefits from infrastructure already built in phase one.
• De-bottlenecking gains: In-house teams added 0.65 MTPA clinker at Kolimigundla and 0.35 MTPA at Ariyalur through pyro process optimization, taking installed clinker capacity to 16 MTPA. Opportunities for cement capacity de-bottlenecking aggregating to one MTPA have been identified. Management sees limited further clinker de-bottlenecking scope, at best another 0.05 to 0.1 crore tons.
• Kurnool Line-2: Expected completion by end of FY2026, with ₹750 Crores included in the FY25 capex plan.
• WHRS at RR Nagar: A 10 MW waste heat recovery system proposed at a cost of Rs.153 Crores, to be commissioned by March 2025, pending statutory permissions.
• Bommanahalli land acquisition: Management called land acquisition "the most difficult job in setting up of a manufacturing unit" and declined to disclose cost per acre or total cost. A plant announcement will come only after Board approval, at a minimum of 12 to 18 months, with construction taking a minimum of 18 months thereafter.

M F Farooqui: "Normally the companies will add all these capacities over a period of time and not the day number one... even though for first phase we spend over 3,000 Crores, for the same capacity second phase is going to be only 1,250 Crores because already all the infrastructures we have created."

Capex & Funding

• FY2024 capex revised to Rs.2,000 Crores: The increase from Rs.1,600 Crores is attributed to de-bottlenecking activities and increased momentum in land acquisition for the Bommanahalli project. When an analyst noted this is the third year of upward revision, management cited only the current year's reasons without addressing the pattern.
• FY2025 capex guided at Rs.1,700 Crores: To be funded predominantly through internal accruals. Management plans to align capex to cash generation, stating that speeding up capex would increase borrowing.
• FY2026 capex unanswered: Management declined to discuss FY2026 capex, saying "we will discuss later," when asked if there would be a steep drop given the completion of Kurnool phase one and land acquisition.
• Maintenance capex: Runs at ₹200–250 Cr per annum on an ongoing basis.
• Capex efficiency questioned: An analyst noted Ramco's capex per million ton is among the highest in the industry ($200 per ton vs $70-$80 for peers) without correspondingly better efficiency or lower opex per ton. Management explained that facilities like railway sidings, colonies, WHRS, and thermal plants are created day one at Kurnool, whereas peers add them over time. The underlying question on profitability was not directly addressed.

Balance Sheet & Leverage

• Net debt: Rs.4,993 Crores as of December 31, 2023, with net debt to EBITDA at 3.22 times.
• Peak debt conviction: Management is "very confident" net debt will not go beyond Rs.5,000 Crores and has peaked out. The plan is to ensure free cash flow from operations funds capex, with no additional borrowings proposed.
• Leverage trajectory: Net debt to EBITDA in percentage terms will come down, but absolute borrowing numbers will remain the same. Management emphasized being fully conscious of leverage.
• Average cost of debt: Rose to 7.82% for nine months FY2024 from 6.16% in nine months FY2023, due to an increase in market rates.
• Non-core asset monetization: Identified certain non-core assets that could yield Rs.500-600 Crores if the right value is obtained, though the current political situation has delayed this. Management could also sell up to a 74% stake in wind power assets if necessary, but this is not a priority.

Management: "Last 50 years not even single day there was a delay in repayment of loan."

Guidance & Commitments

Key Metrics