ICICI Direct is bullish on Sagar Cement has recommended buy rating on the stock with a target price of Rs 800 in its research report dated July 26, 2019.
ICICI Direct's research report on Sagar Cement
Sagar Cements exhibited a strong performance for Q1FY20 owing to healthy realisations. Revenues reported strong 25.2% YoY growth to Rs 344.2 crore owing to 10.6% volume growth and 13.2% realisation growth. Volumes for the quarter were at 0.82 MT with strong realisation growth of 13% YoY to ~Rs 4200/t. With production costs staying flattish YoY, EBITDA/t and margins increased with EBITDA/t growing 95% YoY to Rs 959/t and margins expanding ~960 bps YoY to 22.8% owing to better realisations and a low base of Q1FY19. Improved profitability led to 36.4% growth in EBITDA to Rs 78.6 crore while PAT jumped ~4x to Rs 29.5 crore. Total 50% of the 31 lakh warrants issued in January 2019 have been converted to equal number of shares at Rs 730/share.
Led by expectations of stable realisations post Q3FY20E and rationalisation of costs, Sagar Cements’ profitability is expected to remain healthy. Also, the company would be raising debt for funding expansion. However, debt/EBITDA is expected to remain at comfortable levels of ~3.1x. Thus, we maintain BUY rating on the company valuing it at ~9.5x EV/EBITDA and arrive at a target price of Rs 800/share (implying EV/t of $76/tonne).
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