Buy Sagar cement; target of Rs 900: ICICI Direct

ICICI Direct is bullish on Sagar cement has recommended buy rating on the stock with a target price of Rs 900 in its research report dated January 21, 2021.

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ICICI Direct’s research report on Sagar cement

Sagar cements reported healthy set of numbers with EBITDA growing 5x vs last year during Q3FY21, though it was down marginally by 0.3% on QoQ basis. Sales volume recorded double digit growth of 12.6% YoY to 0.86MT. Realisations also remained firm at Rs4229/t (up 23.2% YoY) in AP and Telangana region. However, it corrected by 6.3% QoQ. The plants during the quarter operated at 58% vs 52% last year and 50% in the last quarter. EBITDA margin for the quarter came in at 28.7% vs 7.6% LY. However, it declined by 344bps QoQ. Sharp jump being witnessed in the raw material cost (up 24% QoQ to Rs812/tonne). However, it was down by 11.8% on YoY basis. Freight cost increased by 3.7% on per tonne basis due to rise in the diesel prices. Optimal thermal efficiency and usage of alternative fuel helped in keeping power cost lower for the quarter. Overall, company managed to reduce total production cost by 4.9% YoY to Rs 3015/t (down 1.5% QoQ). As a result, EBITDA/t increased by 367% YoY to Rs1,214/t (vs. I-direct est of Rs1,206/t). Higher operating profits and low interest led to company reporting net profits of Rs 49.6 crore for the quarter vs (I-direct est: Rs 45.5 crore). Gross debt stood at Rs 635 crore with D/E of 0.44x for the quarter. The company has declared second interim dividend of Rs2/share (ie. 20% of face value).

Outlook

We maintain BUY rating with revised TP of Rs900/share (ie at 7x FY22E EV/EBITDA, $ 50/t on 8.25MT)

For all recommendations report, click here

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