Accumulate Sagar Cements; target of Rs 250: Geojit Financial Services

Geojit Financial Services research report on Sagar Cements

Sagar Cements Ltd. (SCL), established in 1985, is a south Indian cement manufacturer with a capacity of ~10.5MT (South-8MT, Central-1MT, East-1.5MT). SCL has a total captive power capacity of 96.96MW. Q2FY25 revenue declined by 23% YoY to Rs. 452cr with volumes dropping by 12% YoY and realisation declining by ~13% YoY (excluding incentive). EBITDA fell by a 67% YoY as EBITDA margin declined by 610bps YoY to 4.2%. EBITDA/tonne fell by a 63% YoY to Rs. 172 owing to lower realisations and negative operating leverage. The company reported a net loss of Rs. 57cr in Q2FY25 (vs loss of Rs. 10.5cr YoY and loss of Rs. 32cr QoQ). The process of clearance of land monetization of 107 acres (Rs.4cr/acre, part of the Andhra Cements acquisition) is progressing (received 1 of 3 government approvals). More clarity on this is expected after Q3. SCL has received Rs. 23cr of incentives from the government for its Jeerabad plant (MP) in Q2. It expects to receive the next tranche in H2FY25 out of a total of ~Rs.150cr incentive over a period of ~7 years.

Outlook

However, the company has reduced its volume guidance for FY25 from 6.5MT to 5.75MT. The healthy demand outlook, along with SCL’s consistent focus on lowering costs and improving utilisations, will aid growth and margins. We value SCL at 9x Dec 2026E EV/EBITDA (2Yr avg=~10x) to arrive at a target price of Rs. 250, downgrading to Accumulate rating considering the sustained pressure on cement prices.

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