Partner With Us NRI
Sagar Cements Ltd>
  • CMP : 238.1 Chg : -6.65 (-2.72%)
  • Target : 250.0 (13.12%)
  • Target Period : 12-18 Month

30 Jan 2023

Cost pressure to ease out; debt remains an overhang

About The Stock

Sagar Cements is a south based cement player with cement capacity of 8.25 MT. Region wise, AP/Telangana accounted for ~60% of sales followed by Tamil Nadu (16%), Karnataka (9%).

  • Going forward, the company will be developing a presence in the faster-growing eastern and central market with recent commissioning of new 2.5 MT capacity
  • Self-reliance in power (61.5 MW), ability to switch between coal and petcoke for fuel requirement and split grinding units near market gives it cost advantage
Q3FY23 Results:

Q3 performance broadly remained in line with our estimates.

  • Revenues were up 72.6% YoY to ₹ 575.7 crore, led by sales volume growth of 66.8% YoY
  • EBITDA improved sequentially with major delta coming from declining power & fuel costs
  • At the PAT level, the company reported a net loss of ₹ 27.2 crore led by higher interest cost (pertaining to loan taken for potential M&A) and depreciation (due to commissioning of new capacities)
What should Investors do?

With capacity expansions in high growth regions like east & central, we expect strong growth momentum, going forward.

  • However, higher debt for potential M&A to pose challenge in the medium-term. Hence, we maintain HOLD rating on the stock
Target Price and Valuation

We value Sagar at ₹ 250 i.e.8.5x FY24E EV/EBITDA.

Key Triggers for future price performance
  • Incremental volumes from new units (1 MT ICU at MP, 1.5 MT grinding unit in Odisha) to help grow the business. Expect revenue CAGR of 23.7% during FY22-24E led by 20.1% CAGR in volumes
  • However, short term headwinds with respect to costs to keep margins under check. Operating leverage to kick in post stabilisation of new capacity
  • The company is on course to reach over 10 MT capacity through M&A in the medium term for which additional debt of ₹ 500 crore has been raised
Alternate Stock Idea:

In our cement sector coverage we also like another high dividend paying company Heidelberg Cement.

  • The company is a cost efficient player in central India having a strong b/s
  • BUY with a target price of ₹ 220/share

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 3 year CAGR (%) FY23E FY24E 2 year CAGR (%)
Sales 1,217.6 1,175.2 1,371.3 1,596.9 9.5 2,242.5 2,442.8 23.7
EBITDA 149.4 185.5 400.4 275.8 22.7 189.1 440.8 26.4
EBITDA (%) 12.3 15.8 29.2 17.3 - 8.4 18.0 -
PAT 13.6 26.5 185.6 59.1 63.3 -79.7 77.5 14.4
EPS (|) 1.0 2.0 14.2 4.5 - -6.1 5.9 -
EV/EBITDA 22.5 18.2 8.6 14.4 - 19.3 7.6 -
EV/Tonne ($) 90.5 83.9 85.6 69.0 - 63.3 58.2 -
RoNW 1.6 2.8 15.5 4.7 - -5.3 5.0 -
RoCE 6.4 7.2 15.4 6.6 - 2.9 10.1 -
Source: Company, ICICI Direct Research

Key performance highlights

  • Revenues were up 72.6% YoY to | 575.7 crore, in line with I-direct estimate of | 575.8 crore. Growth was led by 66.8% YoY jump in volumes to 1.24 MT (up 19.8% QoQ) and 3.4% YoY increase in realisations to | 4645/tonne (up 1.3% QoQ)
  • Capacity utilisation was at 60% vs. 49% in the last quarter
  • EBITDA margin came in at 8.3%, broadly in line with our estimated EBITDA margin of 8.4%. It declined 561 bps YoY mainly due to high power & fuel cost. However, on a sequential basis, fall in fuel prices led to 706 bps jump in margins
  • Reported EBITDA/t came in at | 384/t (vs. I-direct estimate: | 391/t), down 38.4% YoY. On an absolute basis, EBITDA came in at | 47.6 crore vs. I-direct estimate of | 48.1 crore
  • Net loss came in at | 27.2 crore due to a sharp jump in interest expenses (up ~3x YoY to | 51.4 crore, up 2.2%QoQ) and higher depreciation (up ~82% YoY) due to commissioning of new capacities

Key conference call highlights

  • Demand outlook - Demand growth YoY in last nine months was 20%+ in Andhra Pradesh/Telangana, 24% in Karnataka, 20% in Tamil Nadu, 25% in Kerala, 0-3% in Maharashtra and flattish in Odisha. Expect 4.9-4.95 MT sales volume in FY23 whereas 5.5 MT in FY24 from existing plants (excluding Andhra Cements asset)
  • Prices – Q3FY23 exit realisation was flattish compared to the quarter average. Overall prices are expected to remain flattish in Q4FY23 and increase from mid-Q1FY24
  • Costs - Expect | 100-125/tonne cost saving QoQ in Q4FY23 on the back of reduction in fuel cost (better mix) + better operating leverage. Sagar is currently using domestic coal and domestic petcoke
  • Capex & Debt - Net debt likely to increase by | 150 crore but expected to peak out at | 1,250 crore with acquisition of Andhra Cements assets (includes working capital expectations also). A | 30 crore maintenance capex will be incurred in FY24, FY25
  • Andhra Cements update - LoI has been received and the same has been admitted to Amravati bench of NCLT – final order expected in due course (due date is February 9, 2023). Expect the plant to start operations from mid-Q1FY24 (cement capacity) and expect it to reach 55-60% utilisation in a couple of quarters after final order is received

Key triggers for future price performance

To achieve 10 MT capacity by FY25E: The company is aiming to reach 10 MT capacity by FY25E. In the first phase, the company has added 2.5 MT capacity (1 MT in MP and 1.5 MT in Odisha). Post these expansions, the total capacity has increased to 8.25 MT. With likely acquisition on the cards, we expect debt levels to stay elevated in the near term due to increase in the working capital requirement. However, incremental operating cash flows will take care its debt servicing ability and help bring down its debt subsequently post normalisation of its new capacities.

Low cost producer in AP/Telangana region: In the past three years, the company has initiated various cost efficiency measures like setting up of coal based CPP of 18 MW at its plant in Matapally, Nalgonda taking its total power capacity to 61.5 MW. This resulted in the company being 100% self-sufficient in FY20 in terms of power compared to 50% dependence on purchased power three years back. The company also expanded grinding unit in Bayyavaram to 1.5 MT. This, in turn, has helped the company to reduce lead distance. For fuel requirement, the company has option to use petcoke or coal depending upon its cost benefit. Hence, we expect the company to broadly maintain the CoP at optimum levels vs. peers, which would help it to maintain better margins, going forward.

Valuation & Outlook:  With capacity expansions into newer geographies like East & Central, we expect revenue CAGR of 23.7% during FY22-24E, though full potential of new capacities would start reflecting from H1FY24E onwards post potential takeover of cement assets in AP. However, the rise in the debt due to M&A would pose challenge in the medium-term. Hence, we continue to maintain our HOLD rating on the stock. We value Sagar at | 251 i.e. 8.5x FY24E EV/EBITDA.



I/We, Rashesh Shah CA, Cheragh Sidhwa MBA, Debotro Sinha MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.


ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.


Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.


Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.


ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.


The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.


This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.


ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.


ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.


ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.


ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.


Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.


ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.


Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.


ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.


Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.


We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.


This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.



ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research




ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093




Read More