Shares of Ramco Cements saw a decline of over 3% following the company's disappointing earnings report for Q2FY25. This drop reflects weaker-than-expected performance in both profit and revenue when compared to both the previous quarter and the same period last year.
As of 11:50 AM, the stock was trading at ₹882. Year-to-date, the stock has underperformed the broader market, having fallen by 13%, compared to the 9% rise in the Nifty 50 index. Despite the year-to-date losses, the stock managed to post positive returns from August through October.
Weak earnings drive the stock drop
In Q2FY25, Ramco Cements reported a significant 64% year-on-year drop in consolidated net profit, which stood at ₹25.7 crore. Compared to the previous quarter, the net profit also fell by 31%. Revenue for the quarter also witnessed a decline, dropping 12.7% from the same period last year and 2.3% from the previous quarter. The company attributed these revenue declines to a 10% reduction in cement prices and a 3% dip in sales volume, which was further impacted by lower demand during the monsoon season.
Declining volumes and weaker pricing hurt performance
Ramco Cements' total sales volume, including building products, fell to 4.49 million tons in Q2FY25, down from 4.61 million tons in the corresponding period last year. Additionally, the company experienced a drop in cement capacity utilisation, which fell to 75% from 82% in Q2FY24. The decline in utilisation was attributed to the ramp-up of new capacity from the debottlenecking projects and a new line commissioned in Odisha in the second half of FY24.
Operating profit margin takes a hit
The company's operating performance also showed signs of strain. EBITDA for Q2FY25 decreased by 22% year-on-year, amounting to ₹323 crore. This led to a decline in the operating margin, which slipped to 16% from 18% in the previous year.
The rise in raw material costs, up by 1% year-on-year to ₹903 per ton, was a contributing factor to the margin contraction. Inflation in procurement costs had an impact on the company's ability to maintain profitability. For people looking to invest in stocks, this performance is an important indicator to be taken into consideration.
Debt increases as the cost of borrowing rises
As of September 30, 2024, Ramco Cements reported a net debt of ₹5,103 crore, with a debt-to-EBITDA ratio of 3.95x. The cost of borrowing increased slightly to 7.96% during the quarter. The company, however, took steps to manage its debt burden, repaying ₹326 crore in October 2024 through the sale of non-core assets. These measures are likely to support its efforts in reducing debt and improving financial stability in the coming quarters.
Implications for investors
For those looking to invest in stocks, Ramco Cements' current performance highlights the risks involved in the cement industry, particularly in a period of weak demand and fluctuating pricing. Despite the challenges, the company's ongoing efforts to reduce debt and expand its capacity could present potential opportunities in the long term. However, the immediate outlook remains challenging, and investors must weigh these risks carefully before making investment decisions. As always, it is important to assess the market conditions and company-specific factors before deciding to invest in stocks.
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