Shares of Ramco Cements surged 7% on the Bombay Stock Exchange (BSE) on Tuesday, hitting a nine-month high of Rs 927. The rally comes amid strong trading volumes, driven by optimism over the company’s prospects in the second half of the financial year 2024-25 (H2FY25). The stock’s surge marks its highest level since February 2024 and reflects investor confidence in a potential earnings rebound despite a challenging first half.
Mixed performance in Q2FY25
Ramco Cements posted a challenging performance in the July-September quarter (Q2FY25), reporting a 75% year-on-year (YoY) decline in profit to Rs 26 crore. This sharp drop was attributed to reduced demand during the monsoon season and a drop in cement prices, which impacted the company’s revenue and profitability. Ramco Cements reported revenue of Rs 2,038 crore, down 12.5% YoY, as cement prices declined around 10% YoY and sales volume decreased by 3% due to lower demand. The seasonal monsoon lull exacerbated the already weak demand, affecting overall sales performance.
Earnings before interest, tax, depreciation, and amortization (EBITDA) per tonne also saw a 20.5% YoY decline (4.7% down sequentially) to Rs 700 per tonne, largely driven by reduced revenue from lower realizations. Utilization rates further suffered, dropping from 82% in Q2FY24 to 75% in Q2FY25. This decline was primarily due to increased capacity from the company’s recent debottlenecking efforts and the commissioning of a second production line in Orissa during the latter half of FY24.
Cost-cutting efforts and debt reduction
Despite the tough market environment, Ramco Cements has managed to mitigate some of the negative impacts by lowering production costs. The company achieved cost savings from reduced fuel prices and enhanced manufacturing efficiency, but price pressures continued to weigh on overall margins.
Additionally, Ramco Cements made significant strides in debt reduction, repaying Rs 326 crore of its debt in October 2024. The repayment was largely financed by the sale of non-core assets, aligning with the company’s broader financial restructuring strategy. In Q3FY25, Ramco expects an additional Rs 74 crore from land sales, with further asset disposals under progress. These moves are aimed at fortifying the company’s balance sheet, enhancing liquidity, and providing capital for future capacity expansion.
Positive h2 outlook and capacity expansion plans
According to analysts at ICICI Securities, Ramco Cement’s weak first-half performance is likely to be followed by an improved H2FY25. The brokerage firm forecasts a rebound in demand, particularly in the southern and eastern regions, and anticipates gradual price increases as the sector stabilizes post-monsoon. ICICI Securities also highlighted the company’s ongoing operational efficiencies and cost improvements in power, fuel, and logistics, which are expected to support margins and boost EBITDA per tonne.
Ramco Cements is on track to expand its production capacity from 24 million tonnes per annum (mtpa) to 30 mtpa by FY26. This capacity increase is expected to drive medium- and long-term volume growth, positioning the company favorably in a competitive market. ICICI Securities also noted that Ramco’s focus on operational efficiency and positive operating leverage would likely lead to steady EBITDA growth over FY25-27.
Asset monetization strategy
A key component of Ramco’s strategy to bolster its financials is its ongoing asset monetization plan, which aims to raise Rs 1,000 crore from the sale of non-core assets. The company has already realized Rs 376 crore from asset disposals as of September, with proceeds directed toward capital expenditures. By converting non-core assets into cash, Ramco aims to fund its expansion projects while maintaining a manageable debt load, which could further enhance shareholder value.
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Brokerages cautiously optimistic
Despite the stock’s recent rally, some brokerages remain cautious about Ramco Cements’ near-term outlook due to ongoing price pressures and competition in the southern market. Motilal Oswal Financial Services, for instance, has maintained its earnings estimates for FY25-27, citing concerns over pricing pressure in Ramco’s core southern market and increased competition from other cement producers ramping up capacity in the region.
However, the medium- to long-term outlook remains optimistic, given the company’s capacity expansion plans and continuous focus on cost efficiency. Market analysts believe that a steady increase in demand, coupled with a rebound in cement prices, could position Ramco Cements to capitalize on future growth opportunities, particularly if the broader construction and infrastructure sectors gain momentum in the coming quarters.
With a healthy outlook for H2FY25 and an aggressive expansion strategy, Ramco Cements is poised for a potentially strong recovery in the second half of the fiscal year. The company’s efforts in debt reduction, cost optimization, and asset monetization have strengthened its financial position, enabling it to pursue ambitious capacity growth goals. While challenges remain in the form of pricing pressures and heightened competition, the recent stock rally suggests that investors are banking on Ramco Cements’ ability to navigate these headwinds and deliver improved financial performance in the months ahead.
