YES Securities is bullish on Sagar Cements has recommended buy rating on the stock with a target price of Rs 476 in its research report dated June 02, 2020.
YES Securities' research report on Sagar Cements
Consolidated volumes for the quarter came in at 0.84 MT, declining by 11% y/y due to Coronavirus inflicted lockdown measures. Post relaxation in beginning of May, SGC’s utilization has ramped up to 30% currently vis-à-vis 54% for FY20. Notwithstanding the fact that SGC’s clinker production cost/te for Q4FY20 has declined by 11.6% y/y owing to softening of fuel prices and cost rationalization measures, EBITDA/te declined by 18.8% y/y – at Rs 533 due to weak pricing scenario as compared to last year (NSR was down ~7% y/y). Given the current scenario, company expects normalcy in operations from COVID related disruptions only after September 20. Accordingly, we have downgraded our volume/EBITDA estimates by 23.5%/22.2% and 13%/16.8% for FY21E and FY22E respectively. Further, we expect peak net debt for SGC at Rs 7.86 bn in FY22 and peak net debt/EBITDA of 3.7x in FY21.
Currently SGC is trading at EV/EBITDA of ~5.4x and EV/te of $25 on FY22E. Assigning an EV/EBITDA multiple of 7x on FY22E, we have a target of Rs 476 (potential upside of 62%). We maintain our BUY rating on the stock.
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