Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the commercial paper programme of The Ramco Cements Ltd (TRCL).

 

The rating continues to reflect the strong market position of the company in the southern region, healthy operating efficiency and financial risk profile. These strengths are partially offset by modest return on capital employed (RoCE) and susceptibility to volatility in input prices and cyclicality in the cement industry.

 

In the first nine months of fiscal 2025, consolidated operating income decreased 8.6% on-year, on account of lower realisations while volume improved marginally. Declining realisations also led to earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne declining to Rs 691 during this period (against Rs 888 in the first nine months of fiscal 2024). With expected recovery in demand and price hikes, the operating performance is expected to improve in the last quarter of fiscal 2025 driven by higher operating leverage. Nonetheless, volume growth for fiscal 2025 is expected to be at low single-digit and profitability expected to remain below Rs 750 per ton (from Rs 849 in fiscal 2024). However, healthy improvement is expected fiscal 2026 onwards with expected increase in realisation and cost efficiency measures undertaken by the company.

 

The company has an installed capacity of around 24 million tonnes per annum (MTPA) as on December 31, 2024 and has a target to reach 30 MTPA by fiscal 2026, part of which will be through de-bottlenecking at existing plants. Crisil Ratings expects TRCL to incur a total capital expenditure (capex) of Rs 2,400 crore over fiscals 2025-2026 including towards cost efficiency programs.

 

The financial risk profile continues to be healthy despite high debt funded capex undertaken by the company over the past few years to enhance its capacity, resulting in net debt to Ebitda ratio remaining above 3.0 times in the past two years ending fiscal 2024. While the ratio is estimated to remain elevated in fiscal 2025 as well, it is expected to improve to below 3 times in fiscal 2026 as profitability improves. Crisil Ratings also derives comfort from the capex prudence exhibited by the company and expects that to continue in a scenario of weaker-than-expected operating performance. The company has also monetised non-core assets of Rs 443 crore through sale of shares and land parcel during the first nine months of fiscal 2025. Further, it is also in advanced discussion to monetise additional Rs 550 crore in the coming months which will support the deleveraging plans. The financial risk profile also draws comfort from the healthy financial flexibility and comfortable capital structure.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TRCL and its subsidiaries and associates as the entities have strong operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position in southern region with diversified presence in eastern region: TRCL has combined manufacturing capacity of around 24 MTPA as on December 31, 2024, spread across Tamil Nadu, Andhra Pradesh, Karnataka, Odisha and West Bengal. It is the third largest player in the southern region. The company has an established market presence in south India (contributed 79% of overall sales in the first six months of fiscal 2025) as well as strong brand recognition in the region, with key markets being Tamil Nadu, Kerala, Karnataka and Andhra Pradesh. The company has a target to commission 6 MTPA grinding capacity in the southern region of which 2 MTPA capacity will be added in its Kolimigundala plant through brownfield expansion and remaining capacity through debottlenecking.

 

Out of the overall capacity, TRCL has been operating 2 MTPA in Kolaghat (West Bengal), 2 MTPA in Vizag (Andhra Pradesh) and 1.8 MTPA in Haridaspur (Odisha) to service the eastern market, which contributed 20% to overall sales in the first six months of fiscal 2025. The share of the eastern region has decreased gradually over the past four years (from 24% in fiscal 2021) as it commissioned new capacities in the southern region. The share is expected to remain range bound going forward as well with company setting up additional facilities which will cater to southern and western region.

 

TRCL will retain its strong brand image in the south market with brands such as Ramco Supercrete and Ramco Supergrade and maintain steady cash accrual, while gradually establishing itself in the new markets over the medium term.

 

• Healthy operating efficiency: Operating efficiency arises from sharp focus on operations supported by presence of captive power plants, which meet majority of the power requirement, setting up of split grinding units near markets which helped in better management of freight cost, and continuous investment to increase operating efficiency. The company has captive thermal power plant capacity of 193 megawatt (MW) along with wind power capacity of 166 MW and waste heat recovery system (WHRS) of 45 MW. Also, the company is in process of implementing aggregate WHRS capacity of 25 MW in its Ramasamy Raja Nagar and Kolimigundala facility leading to increased operating efficiency.

 

The operating efficiency is also expected to benefit from rise in capacity utilisation which will be supported by healthy demand outlook. The company is estimated to sustain its high capacity utilisation at around 80% in fiscal 2025, a significant rise from the average of around 56% in the past decade ending fiscal 2023.

 

• Healthy financial risk profile: The financial risk profile is healthy, marked by strong financial flexibility, comfortable capital structure and adequate debt protection metrics.

 

Gearing is estimated at below 0.7 time (based on gross debt) as of March 31, 2025. Net cash accrual to adjusted debt is estimated to remain at around 0.2 time with monetisation proceeds of non-core assets of Rs 443 crore utilised to repay debt. Receipt of additional proceeds from monetisation of non-core assets during the current fiscal utilised to repay debt will lead to further improvement in the capital structure. The capex during fiscal 2025 and 2026 is expected to be at Rs 1,200 crore annually, lower than average of Rs 1,800 crore per year for the past three years with accruals expected to fund majority of the capex.

 

With capex intensity expected to reduce, the financial risk profile will remain healthy over the medium term, aided by better profitability. However, higher-than-expected debt-funded capex may constrain the financial risk profile and will remain a key monitorable.

 

TRCL is the flagship company of the Ramco group, which has a lineage of over 80 years, and healthy relationships with the lending community and capital markets. This is also reflected in the competitive interest rates enjoyed by TRCL.

 

Weaknesses:

• Moderate RoCE owing to significant investment towards capacity additions: The company’s RoCE remained subdued at below 10% since fiscal 2022 owing to high capex undertaken in the past few years. The company has undertaken capex of around Rs 9,300 crore during fiscal 2020 to 2024 which resulted in a significant increase in capital employed. Cash accrual did not increase proportionally as capacity utilisation averaged 60% leading to modest RoCE.

 

However, with completion of the ongoing capex and capacity utilisation expected at more than 80% going forward, RoCE is expected to improve gradually.

 

• Susceptibility to volatility in input cost and realisations, and cyclicality in the cement industry: Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and numerous players adding capacity during the peak of a cycle. This led to unfavourable price cycles for the sector in the past. Decline in the cement prices across the industry during the first nine months of fiscal 2025 has impacted the profitability of cement players. Moreover, profitability remains exposed to volatility in input prices, including raw material, power, fuel and freight. Realisations and profitability are also affected by demand, supply, offtake and regional factors.

Liquidity: Strong

TRCL enjoys healthy liquidity driven by expected annual cash accrual of more than Rs 1,000 crore in fiscal 2026. TRCL also has access to fund-based limit which is moderately utilized. The company has repayment obligation of Rs 1,026 crore for fiscal 2026. The company is expected to utilise cash accrual along with proceeds from monetisation of non-core assets (totalling to Rs 1,000 crore) to meet the repayment obligation. The company is expected to fund its capex requirements through a mix of internal cash accrual and debt. Bank lines are expected to meet the incremental working capital requirement.

 

ESG profile

The Environment, Social, and Governance (ESG) profile of TRCL supports its already strong credit risk profile.

The cement sector has a significant impact on the environment owing to higher emissions, waste generation and water consumption. This is because of energy intensive cement manufacturing process and its high dependence on natural resources such as limestone, coal as key raw materials. The sector has social impact due to its nature of operations affecting local community and health hazards involved. TRCL has continuously focused on mitigating its environmental and social risks.
 

Key ESG highlights:

• The company achieved Thermal Substitution Ratio of 6.28% in fiscal 2024
• The company achieved water positivity of 4.5 times in fiscal 2024.
• In TRCL, various corporate social responsibility and social projects have been taken up including education, skill development, health and hygiene, women empowerment, disaster management and relief and biodiversity sustenance.
• Its governance structure is characterised by 71% of its board comprising independent directors, dedicated investor grievance redressal system and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. Commitment of TRCL to ESG will play a key role in enhancing stakeholder confidence, given high access to domestic capital markets.

Rating sensitivity factors

Downward factors:

• Sustained weakening in operating performance due to lower-than-expected demand
• Larger than expected debt-funded capex leading to decline in net debt to Ebitda to over 3.5 times on a sustainable basis

About the Company

TRCL is a leading cement player with capacity of around 24 MTPA spread across Tamil Nadu, Andhra Pradesh, Odisha, Karnataka and West Bengal. Set up in 1957, the company manufactures and markets cement under the brand Ramco, predominantly in south India. It also has windmill capacity of 166 MW, captive thermal power plants with capacity of 193 MW and WHRS of 45 MW.

 

TRCL is the flagship company of the Ramco group, which deals in cement, fibre cement sheets, textiles (cotton yarn) and information technology. Other companies in the group include Rajapalayam Mills Ltd (‘Crisil A+/Negative/ Crisil A1’), Ramco Industries Ltd (‘Crisil A1+') and Ramco Systems Ltd. The group was founded in 1938 by Late Mr P A C Ramasamy Raja and is presently managed by his grandson, Mr P R Venketrama Raja.

 

In the first nine months of fiscal 2025, TRCL’s consolidated revenue was Rs 6,121 crore and profit after tax (PAT) was Rs 244 crore, compared with Rs 6,698 crore and Rs 228 crore respectively, in the corresponding period of fiscal 2024

Any other information: Not Applicable