2 Small Cap Cement Stocks To Buy & Add To Your Portfolio For Up To 40% Returns

Cost efficiency and expansion to benefit the company

According to Anand Rathi the capacity ramp-up to aid sales volume growth. With the recently completed
expansions (a 1m-tonne IU in MP and a 1.5m-tonne GU in Odisha), Sagar diversified its regional operations from 100% in the South to Central and East India, insulating itself from regional risks. Q4 revenue grew 20% y/y to Rs5bn aided by 10.3%/8.9% y/y volume/realisation growth. Sagar's South sales volumes growth would be flat in FY23; growth would largely stem from the ramp-up of its MP and Odisha units.

"The inflationary cost environment and low capacity utilisation of the recently commissioned units led to EBITDA declining 41% y/y and EBITDA/ton, 47% y/y to Rs542. While prices are steady, costs are expected to rise 2-3% in Q1 FY23 mainly due to high freight costs (4.5 months' fuel stocks are available). Various efforts to improve operating efficiency (high blending ratio/higher trade sales/low cost Singreni coal available) would boost the operating performance," Anand Rathi has said in a report.

 

Buy Sagar Cements stock with a price target of Rs 305

Anand Rathi has a buy call on the stock of Sagar Cements with a price target of Rs 305 on the stock. This means that the upside potential is as much as 40%, considering the present market price of Rs 218. With 8.25 metric tonne per annum now, Sagar Cements aims at 10m by 2025, organically and inorganically. Inorganic expansion is on the cards (by Q2/Q3 FY23). Gross debt on 31st Mar'22 was Rs15 bilion; and net debt is guided to be Rs 8 bn-8.5 bn. "With greater profitability, return ratios are set to improve. We expect 27%/29%/40% volume/revenue/EBITDA CAGRs over FY22-24. We retain our Buy rating, with a Rs305 target, valuing the stock at 8 times FY24e EV/EBITDA and an EV/ton of $68," the brokerage has said. According to the firm, the key risks for the stock are rising prices of pet-coke and diesel, slowdown in demand.

Orient Cement: Focus on remunerative markets

This is another small cap cement stock where brokerage firm Anand Rathi has a buy call. "With no big government projects in its key operating region and its strategy to avoid far-off un-remunerative markets, cement sales volumes fell 12.4% y/y to 1.62m tons, though realisation/ton rose 10.3% y/y. Further, on fluctuating demand, price hikes have been held in abeyance. The share of premium cement (stroncrete)rose to 14% of trade sales (60% of overall sales). We expect volume/revenue to clock 7%/9% CAGRs over FY22-24," the firm has said. The solar unit and efforts to keep alternative fuel to 15-20% of the fuel mix, and the coming WHRS by end-FY23 would help optimise costs.

Buy the stock of Orient Cements for a price target of Rs 178

Anand Rathi has set a price target of Rs 178 on the stock of Orient Cements. The firm believes that the guidance for capacity expansion completion by FY24 at Tiroda (2m tonnes) and Devapur (clinker 2m tonnes, GU 1mtonnes) were maintained. "No orders for equipment, though, have been placed. The company repaid Rs4.86bn debt in FY22 (gross debt at 31st Mar'22 was Rs3.1 billion). The process for approvals for the mining-lease transfer in Rajasthan is expected to be completed shortly. The planned capex would push debt upto a peak of Rs10bn-11bn by FY24, when net D/E would be 0.6x (vs 0.2x in FY22). We retain our Buy rating, with a lower target of Rs178," the firm has stated. According to it, the key risks would be pet-coke/diesel prices, demand slowdown.