Buy Sagar Cements; target of Rs 246: Geojit Financial Services

Geojit Financial Services research report on Sagar Cements

Sagar Cements Limited (SCL), established in 1985, is a south India based cement manufacturer with a capacity of ~10.6MT (South-8.1MT, Central1MT, East-1.5MT). SCL has a total captive power capacity of 96.96MW. We revised our target price to Rs. 246 and upgrade our rating to BUY factoring in expected improvements in utilization and margin, along with the correction in valuation. Q3FY24 revenue grew by 16%YoY, aided by volume improvement (14%YoY) from new capacities. However, SCL has lowered volume guidance for FY24 due to the impact of the flood and state elections. Ramp up in new capacities along with lower input prices aided operating profit to increase by 83% YoY to Rs.87cr. Net loss narrowed to Rs.10cr vs. Rs.27cr YoY. Margin will improve further with better utilization. Recent pressure on cement prices is the key risk to watch out for. Clearance of land monetization of 107 acres (part of the Andhra Cements acquisition) is expected to be completed in ~12-15 months (Rs.4 crore/ acre). SCL also expects ~Rs.150cr incentive from the government over a period of ~6.5years for its Jeerabad plant (MP) starting from FY24.

Outlook

We value SCL on SOTP basis, with cement business at ~8x FY26E EV/EBITDA, to arrive at a target price of Rs. 246. We upgrade our rating to BUY due to recent correction in stock price and expected improvement in utilization and margin of new capacities.