ICICI Direct's research report on Sagar Cement
Sagar Cement reported a robust performance with EBITDA, PAT growth of 2.5x, 10x, respectively, in Q2FY21. Revenues grew 22.8% YoY to Rs 325.9 crore (vs. I-direct estimate: ~Rs 319 crore). Sales volumes recovered with growth of 1.7% YoY to 0.72 MT (above pre-Covid levels). Realisations improved sharply by 20.8% YoY to Rs 4512/t (down 5.5% QoQ) in AP and Telangana region. The plants during the quarter operated at 50% vs. 49% last year. As the company uses 100% petcoke, usage of low cost petcoke inventory (prices down 27% YoY) helped it to reduce power & fuel cost by 28% YoY to Rs 844/t. Freight costs, however were up 10% YoY to Rs 769/t due to increase in lead distance from 288 km to 319 km along with increase in diesel prices. Overall, the company managed to reduce total production cost per tonne by 2.4% YoY to Rs 3062/t. As a result, EBITDA/t increased sharply by 143% YoY to Rs 1,451/t (vs. I-direct estimate of Rs 1,365/t) and margins doubled YoY to 32%. Higher operating profits and low interest costs led the company to report 919% YoY growth in net profit to Rs 50.2 crore for the quarter vs. I-direct estimate of Rs 43.5 crore. Gross debt was at Rs 527 crore with D/E of 0.35 for the quarter. The company declared an interim dividend of Rs 2/share (i.e. 20% of face value).
Outlook
With capacity expansion into newer geographies like east & central, we expect revenue CAGR of 21.3% in FY20-22E though full potential of new capacities would start reflecting from FY23E onwards. Despite the sharp run-up, the stock is still available at FY22E EV/t of $44, implying a considerable margin of safety to the replacement cost of $85-90/t. With strong management, cost efficiency and healthy b/s, we maintain BUY with a revised target price of Rs 950 (i.e. at 7x FY22E EV/EBITDA, $50/t on 8.25 MT).
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