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After years of underperformance, Ramco Cements has staged a remarkable comeback. The stock has rallied 33% over the past three months, driven by investor optimism around deleveraging and a tighter focus on cost efficiency. But beneath this rebound lie persistent structural and regional challenges that may limit further upside.

India’s cement industry has struggled with excess capacity and intense competition, keeping prices under pressure even as demand improved post-pandemic. Housing, accounting for half of cement consumption, boomed in recent years, yet cement prices have grown at a meagre 3% annually over the last 14 years.

In 2024, the slowdown in home sales, a pause in government capex due to elections, and sluggish private investment pushed prices further down, by 8% between April and December.

Read this | Cost pinch is coming for cement companies in Q1

This harsh environment has hit everyone except deep-pocketed players. For Ramco, with its relatively high debt burden, the pain has been especially acute. The recent rally reflects investor relief over its deleveraging efforts. But the sustainability of this turnaround remains uncertain.

Ramco’s fortunes are closely tied to southern India, which contributes nearly 80% of its revenue. But the region remains oversupplied and fragmented, with 60% of the market split among five major players. Price competition escalated further with Adani’s entry. While prices recovered elsewhere in the March quarter, the south stayed weak.

In fact, Ramco’s volumes fell 4% in Q4, a seasonally strong quarter, even as the broader industry grew 5%. For FY25, volume growth was a mere 1%, and with a 10% drop in regional prices, the company’s revenues shrank 9.1% to ₹8,518 crore.

The company’s efforts to improve operational efficiency—better clinker ratios and higher use of green power—did pay off. Fuel costs dropped from ₹1,389 to ₹1,123 per tonne. Raw material costs remained flat. Yet capacity utilization declined five percentage points to 77% due to recent expansions, limiting operating leverage.

This, along with poor realizations, pushed operating margins down from 17% to 15%, and Ebitda per tonne fell from ₹867 to ₹690.

Even as the company pared some debt during the year, interest costs rose due to higher borrowing rates, and depreciation climbed following capacity additions. Excluding a one-time gain of ₹340 crore from asset sales, profit dropped 77% to ₹126 crore.

A fresh blow came from the Supreme Court’s July 2024 ruling allowing states to levy taxes on mineral-bearing land. In response, Karnataka and Tamil Nadu—where companies like Ramco and Dalmia Bharat have a significant manufacturing footprint—introduced such levies. Limestone, which accounts for about two-thirds of cement production costs, is now set to become more expensive.

Read this | Tamil Nadu’s limestone tax: A crushing blow to cement margins?

Tamil Nadu’s tax took effect in February 2025, just after cement prices in the state had slumped to a multi-year low of ₹336 per bag in December 2024, making cost passthrough even harder.

Ramco, with 52% of its clinker capacity in Tamil Nadu, is expected to take the biggest hit. Analysts estimate the state’s new tax could drag down its Ebitda by nearly 10%, given the limited headroom to raise prices amid muted demand.

While Tamil Nadu and Karnataka together contribute only 15% of India’s limestone output, the move puts Ramco and Dalmia Bharat at a cost disadvantage relative to peers. If other states adopt similar levies, however, the pressure may eventually sp evenly across the sector.

Debt reduction remains central to the Ramco story.

Ramco has long carried a heavy debt load, but it has been actively paring it down by monetizing non-core assets. Following the sale of investments and surplus land worth ₹460 crore in FY25, net debt stood at ₹4,481 crore as of March 2025. With another ₹1,000 crore worth of assets slated for monetization, the company expects its net debt-to-Ebitda ratio to improve from 3.5x to around 2.7x by the first half of FY26.

However, ongoing capital expenditure may slow this progress. Ramco has commissioned a new manufacturing line in Odisha and is expanding clinker and grinding capacity at its Andhra Pradesh unit. It is also debottlenecking other facilities, with the goal of raising total capacity from 24 mtpa to 30 mtpa by FY26.

That said, capex intensity has come down. Between FY20 and FY24, Ramco spent an average of ₹1,860 crore annually. In contrast, plans for the next two years are more conservative, at ₹1,000-1,200 crore per year. The company is also replacing high-cost bank borrowings with lower-cost bonds to finance expansion.

Analysts expect net debt to fall further to ₹3,760 crore and leverage to 1.8x by FY27. Finance costs are projected to moderate to ₹420 crore in FY26 and ₹400 crore in FY27. With a lighter debt burden, cash flows are also expected to strengthen.

April brought signs of respite.

Cement prices in the south have begun to firm up, driven by increased industry consolidation and a strategic shift among players toward profitable growth. In April, prices rose by ₹33 per bag in the southern region—far outpacing the ₹17 increase in the north and the ₹3–5 hikes seen across central, eastern, and western markets. If demand holds, these price gains could support better realizations for Ramco in the coming quarters.

Fuel costs, which account for 20–25% of cement production expenses, have also eased in the first quarter of FY26. A milder summer has kept power usage, and consequently domestic coal prices, relatively low. A stable rupee, meanwhile, should help contain the landed cost of imported pet coke.

Over the long run, the government’s continued emphasis on infrastructure development through the National Infrastructure Pipeline (NIP), along with investments in roads and railways, is expected to drive cement demand.

A revival in private capex should further support this momentum. On the housing front, rural demand will likely benefit from a normal monsoon, while low interest rates and the PM Awas Yojana should help sustain urban demand.

For Ramco, too, operational efficiencies offer additional upside. The company aims to boost limestone recovery through beneficiation and flotation plants, and improve clinker sourcing for its grinding units in the east.

It also plans to increase the share of green energy to 40% and alternative fuel usage to 7%, which should help lower operating costs. Ebitda per tonne is projected to rise from ₹690 in FY25 to ₹900 in FY26, and to ₹970 in FY27. Lower debt levels should further ease interest expenses.

For more such analyses, read Profit Pulse.

That said, risks persist—from geopolitical tensions to currency fluctuations and commodity price swings. The stock currently trades at 11.9x EV/Ebitda, with its target price broadly aligned with current levels. Upside triggers include stronger realizations, market share gains, and sustained profitability improvements.

Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa

Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.

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