Ramco Cements: A cyclical turnaround in the making?

Indian Express

05-06-2025

Cement prices have remained flat for a decade, with South India bearing the brunt. However, with consolidation among major players and early signs of price recovery, Ramco Cements, which is trading near its 2017 peaks, could be poised for a turnaround.
Owing to excess capacity, per bag prices of cement have increased by only 1.7% CAGR over the last 10 years, well below the average inflation rate over the period. Nowhere has this impact been felt more than in South India, where excess capacity has been the highest among regions.
But the silver lining is that prices are expected to inch up owing to the consolidation drive by Ultratech Cement and Ambuja Cement. If there is recovery in pricing, one major player in the southern region – The Ramco Cements – could be a major beneficiary.
While the stock is barely above the peak price it hit in 2017 of Rs 866 per share, there are enough reasons to dig deeper into the company.
A climb and then a dip in sales and volumes
From FY21 to FY24, Ramco Cements more than doubled cement volumes — from 8.3 million metric tonnes (MMT) to 18.0 MMT — driving revenue from Rs 5,303 crore to Rs 9,483 crore. However, despite surging volumes, EBITDA margins slid from ~29.8 percent in FY21 to ~15 percent in FY22 as global coal, petcoke, and diesel prices rose faster than selling prices in South India.
By FY23, improving energy costs helped margins recover to around ~15 percent, and revenue climbed to Rs 8,172 crore. In FY24, volumes hit 18 MMT and revenue reached Rs 9,483 crore, with EBITDA margins at ~16 percent.
Yet, in FY25, volumes plateaued near 18.2 MMT and revenue dipped 9 percent to Rs 8,554 crore, as renewed input inflation outpaced modest price hikes.
Ramco's aggressive capacity additions fuelled top-line growth, but fluctuating energy costs and competitive pricing kept margins under pressure throughout FY21-25. At 14%, Ramco Cements' EBITDA margins are where they were nearly 10 years ago in 2014. With expected improvement in pricing discipline, margins should inch up from here.
Profits and cash flow: Volatile but resilient
While sales has been in an uptrend, owing to declining EBITDA margins (29-14%) and surging interest payments (Rs 88 crore-459 crore), profit after tax (PAT) has shrunk significantly from Rs 784 crore to Rs 270 crore (after exceptional items – other income of Rs 199 crore).
But cash flows tell a different story. Cash flow from operations (CFO) remains strong. Though much of the CFO is used for debt servicing and capex, it reflects operational health. Hence, EV/EBITDA, not P/E, is a more appropriate valuation metric.
Debt and interest coverage: A tight corner
In a bid to maintain market share, Ramco has grown capacities aggressively, which it funded through debt. When margins were healthy, interest was a small blip (FY21, FY22). But as profitability dropped, interest coverage (EBITDA ÷ interest expense) tumbled from 14x in FY2021-22 to 3x in FY2024-25. Put simply, that means Ramco now has to spend a much larger share of its profit on interest. Management has sold non-core land assets (about Rs 455 crore realised so far, with another Rs 545 crore expected soon) to reduce debt and ease pressure. But until EBITDA climbs back up, investors must be watchful of the coverage ratio.
Ramco financed its expansion with debt. As margins shrank, interest coverage dropped from 14x in FY22 to 3x in FY25 — a clear sign of stress.
Understanding Ramco's business and the cement cycle
How Ramco makes money: The basics
Ramco sells bagged cement (OPC, blended cements) to builders, contractors, and cement distributors. It also sells ready-mix concrete and dry mortar (a small part of revenue). Its core markets are Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Odisha, and West Bengal.
Ramco's advantage historically comes from:
Scale & Integration: 11 plants, 22 MTPA capacity, captive limestone mines — this helps control costs.
Green Power: Over 200 MW of wind farms + 43 MW waste-heat recovery — lower electricity costs.
Distribution Network: 9,400+ dealers, 23,500+ sub-dealers — gets cement to tens of thousands of customers in villages, towns, and cities.
Industry consolidation and competition
After a slowdown in 2018-19, the Indian cement industry has seen consolidation. Giants like UltraTech and Ambuja have snapped up smaller players, especially in South India. In FY24 and FY25, Ramco had to keep plants running at high capacity to spread fixed costs, even when demand was weak. Meanwhile, pricing was lacklustre, i.e., supply outpaced demand. From FY21 through early FY2024, South Indian cement prices languished near multi-year lows.
Ramco's response has been to expand in other regions, cut costs, and bank on its brand. They boosted green power use from 22% of total energy in FY22-23 to a planned 34% in FY2023-24. They built rail sidings to ditch diesel trucks. They also sold off non-core real estate to pay down debt.
Demand outlook: Signs of a turnaround
After years of weak pricing, South Indian cement prices finally began to stabilise in early FY25-26. Drivers included a combination of modest demand recovery (government infrastructure projects, rural housing) and relatively slower capacity additions in that region.
South India cement prices had seen an uptick in April 2024, compared to April 2023, however, the price hikes did not sustain through the rest of the year.
According to Nuvama Research, 'In May 2025, cement prices saw an increase across all regions, with the southern region leading the trend, followed by the eastern, central, and western markets. This price hike was mainly driven by an improvement in demand.'
Given that the South Indian cement market is significantly consolidated compared to a year ago, the expectation is that these hikes will sustain themselves. And because South accounts for ~75% of Ramco's volumes, that would directly lift revenue and profitability.
That's why, despite a grim FY25, FY26 could be much better. With most expansion behind them (no massive capex outlays planned beyond maintenance), Ramco can use existing capacity to serve recovering demand, so each incremental tonne sold adds right to the bottom line.
A significant cost pressure has emerged with the introduction of a new Mineral Bearing Land Tax of Rs 160 per tonne of limestone in Tamil Nadu, effective from April 4, 2025. This rate is reported as the highest in India (e.g., Jharkhand levies Rs 40 per tonne). This tax is expected to increase the cost of cement production in the state by approximately Rs 200 per tonne. Given Ramco Cements' strong footprint in South India, this tax poses a direct and substantial threat to production costs and profitability.
The cement industry has appealed to the Tamil Nadu government for relief. The outcome of this request will be critical — an unfavorable decision could result in a structural cost hike for Ramco.
Valuation: Is Ramco a good buy now?
At Rs 988 per share, Ramco's trailing P/E is roughly 85x earnings. That may sound high, but cement stocks often trade at high P/Es because profits are low. For comparison:
UltraTech Cement: 54 P/E
Ambuja Cements: 33 P/E
Shree Cement: 94X P/E
Ramco: 85X P/E
Ramco's P/E at 85X reflects a cyclical trough in earnings (not a premium growth multiple). Thus P/E is usually not a great valuation metric for 'cyclical stocks'.
P/B comparison: Cheaper on book value
P/B is a better metric for comparing valuations for cement companies. Let's take a look :
UltraTech and Shree trade at 4.5x and above
Ambuja Cement trades at 2.5x book value
Ramco trades at ~3.1× book value
That tells us that Ramco's assets (plants, land, mines) are valued more cheaply relative to some of the larger peers.
Based on its 10-year historical media value of 3.5x, Ramco trades at a reasonable discount.
The bottom line: Betting on a cycle turn
Ramco is a cyclical bet. You're wagering that the Indian cement cycle is on the upswing—volumes rising, prices firming, costs stabilizing. If that plays out, the stock today is a 'value' (relative to peers) at mid-teens EV/EBITDA and 2.7x P/B.
But if your horizon is a few quarters, wait for clearer signals of demand and pricing. If you can hold for more than 12-18 months, Ramco's cyclical upswing could lead to far better performance by the company.
Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He has also worked at an AIF, focusing on small and mid-cap opportunities.
Disclosure: The writer or his dependents do not hold shares in the securities/stocks/bonds discussed in the article.
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