High costs and lower prices hit Ramco Cements third quarter

Shares of Ramco Cements Ltd plunged 4% on the NSE on Tuesday, a day the Nifty50 index rose 0.75%. The reason is simple: its results for the December quarter announced Monday evening disappointed investors.

Higher than expected electricity and fuel costs weighed on results. Moreover, the achievements have been moderate. The result: Ebitda (earnings before interest, taxes, depreciation and amortization) fell 42% year-on-year for 231 crores, street estimates missing by a wide margin. Admittedly, cement sales volumes were up 15% year-on-year (yoy) to 3.01 million tonnes, helped by capacity expansion, but given the dismal operating performance, there is no been a lot of respite for investors. With achievements up 0.9% year-on-year, revenue grew only 15.7%.

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Pulled down

“(More covid cases in) Ramco Cements key markets of Tamil Nadu and Kerala have affected the business volume in South India. To counter the fall in volume in the South, the company increased its shipments to Eastern India, which for it is a much less profitable market. Weak realizations in the Eastern and Southern markets resulted in a sharp decline in overall realization,” analysts at Nirmal Bang Institutional Equities Ltd said in a report.

Consequently, its Ebitda per tonne, at 768, was the lowest of the last eight quarters. According to Ramco’s management, the realization or profits in the Eastern markets have been 1,000 per tonne less than southern markets.

Unsurprisingly, after the third quarter results, some analysts lowered Ebitda forecasts for FY22-24. Certainly, after a difficult quarter, there could be some respite. On a post-earnings conference call, management told analysts that costs were declining in the March quarter. With prices rising and demand picking up, Ramco expects Q4 and Q1FY23 to be good.

As cost pressures gradually ease for the company and the industry, the focus is on expanding capacity. “Ramco Cements’ near-term outlook looks challenging due to rising fuel costs, we expect it to benefit from the commissioning of new capacity. We expect Ramco Cements to gain market share in its operating regions (South/East India) through capacity expansions,” analysts from Motilal Oswal Financial Services Ltd said in a report. Motilal analysts point out that clinker capacity increased by 15% (to 11.4 million tonnes per annum (mtpa)) in June 2021 and is expected to increase further by 23% (to 13.65 mtpa) by this time. March Motilal Oswal expects a CAGR (compound annual growth rate) in sales volume of 11% in FY22-24.

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