Markets
High costs, lower prices hit Ramco Cements’ Q3
Summary
Higher-than-expected power and fuel costs weighed on earnings performance of Ramco Cements
The Ramco Cements Ltd’s shares nosedived 4% on the NSE on Tuesday, a day when the Nifty50 index rose 0.75%. The reason is simple: its December quarter results announced on Monday evening disappointed investors.
Higher-than-expected power and fuel costs weighed on earnings performance. Besides, realizations were subdued. The upshot: Ebitda (earnings before interest, taxes, depreciation, and amortization) dropped as much as 42% year-on-year to ₹231 crore, missing Street estimates by a wide margin. True, cement sales volumes rose 15% year-on-year (y-o-y) to 3.01 million tonnes aided by capacity expansion, but given the dismal operating performance, there wasn’t much respite for investors. With realizations rising 0.9% y-o-y, revenues have increased by just 15.7%.
“(Higher covid cases in) Ramco Cements’ key markets of Tamil Nadu and Kerala affected volume for the company in south India. To counter lower volume in South, the company increased its dispatches to east India, which is a considerably less remunerative market for it. Weak realizations in both east and south markets resulted in a sharp fall in overall realization," analysts at Nirmal Bang Institutional Equities Ltd said in a report.
Consequently, its Ebitda per tonne, at ₹768, was the lowest in the last eight quarters. According to Ramco’s management, realization or profits in the eastern markets were ₹1,000 a tonne lower than the southern markets.
Not surprisingly, post-Q3 results, some analysts have cut Ebitda forecasts over FY22-FY24. To be sure, after a rough quarter, there could be some respite ahead. In a post-results conference call, the management told analysts that costs are easing in the March quarter. With an increase in prices and revival in demand, Ramco expects Q4 and Q1FY23 to be good.
With cost pressures gradually easing for the company and the sector, the focus shifts to capacity expansions. “Ramco Cements’ near-term outlook looks challenging due to higher fuel costs, we expect it to benefit from commissioning of new capacities. We expect Ramco Cements to gain market share in its operating regions (southern/ eastern India), led by capacity expansions," analysts at Motilal Oswal Financial Services Ltd said in a report. Motilal analysts point out that clinker capacity grew 15% (to 11.4 million tonnes per annum (mtpa)) in June 2021 and is expected to further increase by 23% (to 13.65 mtpa) by March. Motilal Oswal expects 11% sales volume CAGR (compound annual growth rate) during FY22-24.
