Ramco Cements' Investor Appeal Dims Amid Profitability and Market Share Woes
Ramco Cements Ltd is actively working to win over investors through strategic initiatives, including the monetization of non-core assets, debt reduction, and the launch of a new construction chemicals business. However, these efforts are being overshadowed by weak financial performance and ongoing challenges in its core cement operations.
Weak Q3 Results Undermine Progress
The company's December quarter (Q3FY26) results proved disappointing, despite a modest year-on-year volume growth of about 4% to 4.43 million tonnes. This marked the first increase after three consecutive quarters of decline, but it fell short of the industry's high-single-digit growth, indicating a continued loss of market share. Ramco's heavy exposure to South India, where overcapacity and intense competition are suppressing cement prices, remains a significant hurdle.
In Q3, cement prices in the trade segment for southern and eastern markets dropped by 8-9% from September-end, according to management. This steeper decline compared to pan-India prices led to cement realizations falling at a more-than-expected rate of approximately 7%. Consequently, earnings before interest, depreciation, and amortization (Ebitda) came in at ₹281 crore, missing the consensus estimate of ₹345 crore.
Profitability Metrics Under Pressure
The weak profitability is raising concerns about other financial metrics. HDFC Securities reported that Ramco's Ebitda per tonne of ₹610 in Q3FY26 hit a 13-quarter low. This subdued profitability is expected to keep leverage high, with net-debt-to-Ebitda projected to remain above 2x during FY26-27E, and return ratios low. In response, HDFC has deferred the company's Karnataka expansion to FY29E.
As of December-end, Ramco's net debt decreased to ₹4,145 crore from ₹4,481 crore at March-end. Over the past two years, the company has monetized non-core assets worth ₹1,020 crore against a guidance of ₹1,000 crore and is considering an additional ₹200 crore monetization. Capacity expansion is underway through de-bottlenecking and selective brownfield additions, but a major setback occurred with a 12-month delay in commissioning the Kolimigundala, Andhra Pradesh line-2, now expected by March 2027. The goal is to increase cement capacity from around 24 million tonnes to 31 million tonnes by that date, with FY26 capital expenditure guidance slightly reduced to ₹1,100 crore from ₹1,200 crore.
Brokerages Downgrade Earnings Estimates
Various brokerages have downgraded Ramco's FY27-FY28 earnings estimates, with a quick recovery deemed unlikely. DAM Capital noted that while construction chemicals and quartz could offer long-term optionality triggers, near-term earnings will be heavily influenced by dynamics in South India, which accounts for around 80% of volume mix. The region's low utilization rate of nearly 66% and effective supply addition of approximately 25 million tonnes per annum over FY26-27 are expected to limit pricing and profitability improvements in the medium term.
Despite these challenges, Ramco's shares have risen about 30% over the past year, trading at an FY27 estimated EV/Ebitda of 16.5x, according to Bloomberg data. However, this valuation appears unappealing given the persistent headwinds in the cement business, underscoring the uphill battle the company faces in regaining investor confidence.
