ICICI Direct is bullish on Sagar Cement has recommended buy rating on the stock with a target price of Rs 700 in its research report dated October 23, 2019.
ICICI Direct's research report on Sagar Cement
Sagar Cements saw its operating performance improve on the back of softening of production costs combined with higher realisations. However, the results were below our estimates. Revenues witnessed marginal growth of 2.9% YoY to Rs 265.3 crore (I-direct estimate: Rs 277.2 crore). Sales volumes dipped marginally by 0.8% YoY to 0.71 MT (I-direct estimate: 0.71 MT) on the back of a weak demand scenario in Andhra Pradesh and Telangana. While realisations increased 3.8% YoY to Rs 3,734/t, they missed I-direct estimate of Rs 3,904/t. EBITDA margins expanded 780 bps YoY to 16% (I-direct estimate: 17.6%) while EBITDA jumped 101% during the quarter to Rs 42.4 crore (I-direct estimate: Rs 49.4 crore). EBITDA/t for the quarter was at Rs 596/t, increasing 102% YoY (I-direct estimate: Rs 700/t). Led by improvement in profitability, the company reported a PAT of Rs 4.9 crore for Q2FY20 (I-direct estimate: Rs 15.8 crore).
Sagar Cements’ profitability is expected to remain healthy led by cost optimisation measures. The company already has and is further setting up capacities to cater to the eastern region, which should drive growth, going ahead. Despite debt additions, debt/EBITDA is not expected to increase and remain stable around 3x. Thus, we maintain BUY rating on Sagar Cements valuing it at 9x FY21E EV/EBITDA to arrive at a target price of Rs 700/share (implying EV/t of $70 per tonne).
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