Buy Sagar Cements, target price Rs 390: ICICI Direct

ICICI Direct has buy call on Sagar Cements with a target price of Rs 390. The current market price of Sagar Cements Ltd. is Rs 294.75. Time period given by analyst is one year when Sagar Cements Ltd. price can reach defined target.
Sagar Cements Ltd., incorporated in the year 1981, is a Small Cap company (having a market cap of Rs 3506.79 Crore) operating in Cement sector.

Financials
For the quarter ended 30-06-2021, the company reported a Consolidated Total Income of Rs 397.33 Crore, down -5.25 % from last quarter Total Income of Rs 419.36 Crore and up 49.99 % from last year same quarter Total Income of Rs 264.91 Crore. Company reported net profit after tax of Rs 50.09 Crore in latest quarter.

Investment Rationale
Shares of Sagar Cement have been split on August 17, 2021 (ex-date) pursuant to the board and shareholder approval granted for sub-division of shares in its meetings on July 1, 2021 and July 28, 2021, respectively. The record date for the same has been fixed as August 18, 2021. Subsequently, the shares of the company have been split in the 1:5 ratio — an equity share with existing face value of Rs 10 has been subdivided into five equity shares of Rs 2 face value each. Consequently, the share price has changed to | 304/share from | 1518/share (closing price as on August 2016). Given the strong demand outlook, the brokerage expects the company’s growth trajectory to accelerate further with timely commissioning of new 2.5 MT capacity from September 2021 onwards. It expects revenue and EBITDA CAGR of 30.8% and 27.3%, respectively, in FY21-23E. At the current market price of Rs 311/share, the stock is still trading at attractive valuations of 6.4x FY23E EV/EBITDA leaving decent scope for further upside. Hence, the target price has also been revised upwards to Rs 390/share (i.e. by raising multiple to 8.0x FY23E EV/EBITDA) vs. earlier target price of Rs 340/share (i.e. Rs 1,700/share before stock split or 7x FY23E EV/EBITDA). Accordingly, it continues to reiterate BUY rating on the stock.

Promoter/FII Holdings
Promoters held 50.79 per cent stake in the company as of June 30, 2020, while FIIs and DIIs held 33.47 per cent and public and others 33.47 per cent.