Rationale

The rating action factors in The Ramco Cements Limited's (TRCL) strong business profile, backed by a healthy market share in South India, and its expanding presence in the eastern markets over the last few years. ICRA positively factors in the company's expected revenue growth from the eastern region over the medium term, backed by the recently commissioned clinker and grinding capacities. The company's operating income (OI) witnessed 8% CAGR during FY2016-FY2021, led by an increase in volumes at 7% CAGR. TRCL's OI is expected to increase by 14-17% in FY2022 supported by a low base effect, rural housing demand and pick-up in infrastructure activities. The Government's push for affordable housing and focus on infrastructure are positive factors from the long-term demand perspective. TRCL has strong operational efficiencies and reported one of the highest OPBITDA/MT of Rs. 1,582/MT among the peers and an operating margin of 30.0% in FY2021 (PY:22.0% in FY2020). The company's OPBIDTA/MT declined by 22.6% YoY to Rs.1,285/MT in 9MFY2022 owing to a significant increase in power and fuel costs along with moderation in the net sales realisations in Q3 FY2022 (reported OPBIDTA/MT of Rs. 790/MT in Q3FY2022). The pressure on operating profits is likely to continue till Q1FY2023 and improve thereafter with the expected easing of cost side pressures. The company is likely to incur capital expenditure (capex) around Rs. 1600 crore in FY2022 (incurred Rs. 1387 crore in 9M FY2022), higher than ICRA expectations. Increased capex amid drop in earnings in the current fiscal resulted in higher-thananticipated debt levels. As a result, the net debt/OPBIDTA is likely to remain elevated at around 3.0 times as of March 2022. However, reduction in interest rates and relatively longer tenure for new debt is expected to support the debt coverage metrics. The ratings take comfort from the company's exceptional financial flexibility. Further, TRCL is planning to incur around Rs. 1200 crore during FY2023-FY2024, primarily for its capacity expansion projects to cater to newer geographies which will be largely funded through internal accruals. The net debt/OPBIDTA is expected to improve to around 2.0 times by FY2024. Further, the additional capex will support the earnings growth in the medium to long term. The ramp-up of recently commissioned capacities and the improvement in utilisation of existing facilities remain important to improve the company's return indicators Although TRCL has been gradually expanding its presence in the Orissa and West Bengal markets over the last few years, partly by setting up grinding units closer to these markets, the proportion of revenues remain skewed towards southern India. The company derives about 75% of its revenues from the five southern states, which exposes it to region-specific demand risks. The expected increased penetration in Orissa and West Bengal and its entry into new markets like Maharashtra are likely to aid in diversification. The Stable outlook on the [ICRA]AA+ rating reflects ICRA's opinion that TRCL's credit profile will be supported by its strong operational profile and the exceptional financial flexibility.