Elevated debt levels put Ramco Cements on shaky ground
₹341.5 crore fell short of expectations. The company is yet to fully exhaust its high-cost inventory, but the management expects power and fuel cost to ease ahead. Moreover, the increased chase for volumes and market share has kept the industry’s near-term pricing outlook subdued.
Amid this, Ramco’s elevated debt levels are a bother for investors. Net debt rose by 1% sequentially to ₹4,406 crore as of 30 June. Given Ramco’s ongoing expansion plans, there may not be much respite from higher debt levels at least in FY24.
In Q1, Ramco incurred a capex of ₹284 crore for slated capacity expansions at its Andhra Pradesh and Odisha plants. “We expect upward revision in capex guidance (earlier ₹800-850 crore) in FY24, factoring in the announced land acquisition deal from Prism Johnson. Accordingly, we expect net debt broadly to remain in a similar range till FY25 (net debt-to-Ebitda at 2.0x-2.5x)," said Emkay Global Financial Services in a report.
Further, the company’s average cost of interest-bearing borrowings for the Q1FY24 has increased to 7.95% from 6.66% in FY23. An elevated debt could dampen growth prospects, especially at a time when competition is likely to intensify further. “The Ramco Cements net debt/Ebitda of 3.6x (in Q1FY24) restricts aggressive capacity expansion plans, placing a cap on volume growth from FY2025E versus peers," said a Kotak Institutional Equities report.
Meanwhile, so far in 2023, Ramco’s shares have risen by 21%, largely on the back of a healthy volume growth trajectory expected in FY24. Bloomberg data shows the stock trades at 12x the FY25 estimated EV/Ebitda. In the current backdrop, that appears pricey.Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!
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