Brokerage Maintains Buy Call To This Small Cap Cement Stock For 26% Potential Gains, Details Inside

Stock Outlook

Sagar Cements' stock on Friday closed at Rs 183.30/share after a sharp gain of 2.96% from its previous. The stock's 52-week low level is Rs 154/share, while the 52 week high is Rs 317/share. The stock's CMP is Rs 29.3 above its 52-week low level and Rs 130.7 below its 52-week high level.

ROE of the stock is 5.50%. PE ratio is 310.68. The P/B ratio is 1/49. Its face value is Rs 2. TTM EPS is .0.59. The dividend yield is 0.38.

The stock in the last week gained 9.2%, and last 1 month it has moved up 10.36%, respectively. Whereas in past 1 year, its share has fallen nearly 27.95%. In the last 3 years and 5 years, it has gained 47.34% and 10.2%,. respectively.

Q1FY23 performance

Volume grew by 35% YoY due to robust demand in south and production ramp-up from Jajpur and Jeerabad plants. CU stood at 58% vs 61/55% YoY/QoQ. The share of blended cement improved to 50% vs ~45% QoQ/YoY. In a muted price environment in the south, realisation also registered a good uptick of 6% QoQ. A sharp rise in fuel costs led to a spike in opex by 29% YoY/ 7% QoQ. Input cost rose ~Rs 395/915 per MT QoQ/YoY and came in higher than our estimate. Sagar lowered its lead distance ~5% QoQ to 268km. Higher cost led to 5% QoQ contraction in unitary EBITDA to Rs 514 per MT. Capacity additions led to a surge in capital charges leading to a net loss. Jeerabad/Jajpur plants operated at 46/8% CU in Q1. Jajpur rampup was delayed due to delays in composite cement approvals (now received). Low utilisation at these plants led to negative EBITDA contribution, pulling down consolidated unitary EBITDA by ~Rs 150 per MT.

Outlook

"Cement prices are broadly flat MoM in July. P&F costs are expected to be flat QoQ in Q2. The Jeerabad/Jajpur plants are getting stabilised and management expects that, at ~50/40% CU, the plants would turn EBITDA break-even (expect this to happen in this financial year itself). These plants are expected to also boost volume growth to 5mn MT (+40% YoY) in FY23 and increase share of blended cement from FY23 onwards. If all goes well, Sagar will complete the acquisition of Andhra Cements in Q3FY23 (2.6mn MT cement and 1.65mn MT clinker) and make it operational by Q4. Net debt is expected to peak out at Rs 15bn, post acquisition. Sagar remains committed to doubling its capacity every 10 years. We maintain our earnings estimates for FY23/24E as well as our BUY rating," the brokerage said.

HDFC Securities Maintains Buy with target price of Rs 230/share

The brokerage in the report stated, "We maintain our BUY stance on Sagar Cements with an unchanged Target Price of INR 230/share (7.5x Mar-24E consolidated EBITDA). We like Sagar for its prudent capacity growth, rising regional diversification, and increased focus on green fuel/power consumption and blended cement production. In Q1FY23, Sagar reported in-line performance. While healthy demand in south and ramp-up of Jeerabad/Jajpur plants drove up volumes, elevated fuel costs and negative EBITDA contribution from the new plants pulled down margin, leading to a net loss. Sagar expects its P&F cost to be flat QoQ in Q2. The new plants are also expected to turn EBITDA break-even in FY23. Sagar is also expecting to acquire Andhra Cements by Q3, which will increase its capacity to ~11mn MT."