Sagar Cements - Strong show; capacity set to increase 43% in Sep-21 - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

We maintain our BUY rating on Sagar Cements (SGC) with a revised target price of INR 1,425/share (7.5x Jun'23E consolidated EBITDA). In Q1FY22, sales volume declined 14% QoQ, hit by the lockdown. However, robust pricing across its market drove QoQ unitary EBITDA expansion, thereby offsetting the impact of lower sales on profits. Thus, while net sales fell 6% QoQ, EBITDA/APAT rose 3/3% each. We expect sustenance of healthy pricing to moderate the impact of continued fuel inflation. SGC's capacities in MP and Odisha will become operational in Sep'21, expanding its capacity by 43%. These will both boost volume growth and diversify its regional exposure.

FY22Q1 performance: SGC's sales volume fell 14% QoQ in Q1, hit by the countrywide lockdown. NSR, however, jumped 9% QoQ on robust pricing across all its markets. Rising fuel prices and lower utilisation pulled up opex by 6% QoQ. Robust pricing drove up unitary EBITDA by 20% QoQ to INR 1,218/MT. SGC increased the blended cement production to 45% vs 39/42% QoQ/YoY.

Upcoming capacity to boost volume growth and regional diversification: SGC's 1/1.5 mn MT cement capacity expansion in MP/Odisha is expected to start commercial production Sep'21 onwards, increasing the company's total capacity by 43%. It will bolster volume growth H2FY22 onwards and diversify the company's sales presence outside the southern region. SGC will be spending the pending INR 2.3bn Capex on these projects in H1FY22. Sustenance of solid pricing across its markets should moderate the impact of continued fuel price inflation, keeping the margins buoyant. We upgrade our EBITDA estimates for FY22/23/24E by 10/11/11% respectively, factoring in the robust pricing outlook.

Shares of SAGAR CEMENTS LTD. was last trading in BSE at Rs. 1312.3 as compared to the previous close of Rs. 1302.15. The total number of shares traded during the day was 3817 in over 901 trades.

The stock hit an intraday high of Rs. 1331.6 and intraday low of 1302. The net turnover during the day was Rs. 5032537.

Source : Equity Bulls

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