KRChoksey Research has issued an Accumulate rating for The Ramco Cements Limited, setting a target price of Rs 985 per share. With a current market price of Rs 910, this reflects a potential upside of approximately 8.2%. This recommendation follows Ramco Cements’ Q2FY25 performance, which, despite some volume and margin pressures, showed resilience and provided a solid foundation for long-term growth. KRChoksey has raised its FY26 EBITDA forecast and valuation multiple in response to the company’s improved earnings and strategic expansion plans.

Q2FY25 Financial Highlights: Revenue and EBITDA Beat Expectations

Revenue: Ramco Cements reported Q2FY25 revenue of Rs 20,441 million, marking a decline of 12.7% year-over-year (YoY) and 2.4% quarter-over-quarter (QoQ). Despite this dip, revenue surpassed KRChoksey’s projections due to strong volume growth.

EBITDA: The company’s EBITDA for Q2FY25 stood at Rs 3,141 million, down 22.6% YoY, with an EBITDA margin of 15.4%. This margin contraction reflects weaker cement pricing and increased raw material and freight costs.

Net Profit: Profit after tax (PAT) was Rs 257 million, a substantial decline of 64.3% YoY. The PAT margin dropped to 1.3%, impacted by reduced realizations and cost pressures.

Production and Capacity Utilization

Sales Volume: Ramco Cements sold 4.5 million tons of cement in Q2FY25, down 2.6% YoY but up 3.0% QoQ.

Capacity Utilization: Utilization decreased to 75% in Q2FY25 from 82% in the same quarter last year, largely due to additional capacity from debottlenecking and the commissioning of Line 2 at its Orissa plant.

Premium Products: The share of premium products decreased in Q2FY25, particularly in southern India, where it dropped to 27% from 30% YoY. In eastern markets, however, premium products gained traction, increasing to 23%.

Strategic Expansion Plans: On Track to Reach 30 MTPA by FY26

Ramco Cements is executing an ambitious growth plan, aiming to expand its cement grinding capacity to 30 million tons per annum (MTPA) by FY26. This strategy includes:

Capacity Increases: Additional grinding capacity in Andhra Pradesh and Tamil Nadu, expanding total capacity by 0.9 MTPA with a capex of Rs 580 million.

New Facilities: A new building products unit in Odisha is scheduled for commissioning by March 2025.

Power Cost Management: An 18 MW thermal power plant began operations in September 2024, while a 10 MW Waste Heat Recovery System (WHRS) at RR Nagar is set to go online in FY25, reducing overall power expenses.

Cost Management and Financial Health

Power and Fuel Costs: Ramco Cements reported a decline in power and fuel costs to Rs 1,121 per ton, benefiting from increased green power utilization, which stood at 39% of the power mix in Q2FY25. The company expects to raise this to 42% annually by FY25.

Asset Monetization: To enhance liquidity, Ramco Cements monetized Rs 3,760 million worth of non-core assets. Additional land sales worth Rs 740 million are expected to close in Q3FY25. Proceeds from these transactions have been used to reduce debt.

Debt Management: The company repaid Rs 3,260 million of debt in October 2024 from asset sales, signaling a disciplined approach to leverage.

Positive Market Dynamics and Demand Outlook

KRChoksey anticipates demand recovery in the cement sector driven by infrastructure development and increased construction activity. Ramco Cements is well-positioned to benefit from these tailwinds, with expectations for improved cement pricing in the coming quarters supporting revenue growth.

Valuation and Target Price Adjustment

KRChoksey has increased its FY26 EBITDA estimate to Rs 19,555 million, up from Rs 19,444 million, and raised the valuation multiple to 14.5x FY26E EV/EBITDA from 13.0x. This adjustment reflects confidence in Ramco Cements’ ability to meet its expansion targets and capitalize on demand recovery. The new target price of Rs 985 offers a moderate upside for investors at the current level.

Key Risks and Considerations

Investors should be aware of certain risks, including:

Pricing Pressure: A prolonged dip in cement prices could impact profitability.
Cost Volatility: Rising raw material or transportation costs may add pressure to margins.
Regulatory Risks: Environmental and regulatory changes affecting cement manufacturing could influence operational costs.