Sagar Cements Q1 Results Review - Cost Rationalisation Led To Ebitda Beat: Systematix

Systematix Research Report

Sagar Cements Ltd.’s Q1 numbers were a mixed bag where revenue was lower than expectations while Ebitda was above expectations. Revenue up by 3.9% YoY (20.9% QoQ) to Rs 5.6 billion versus our estimate of Rs 6.2 billion. This growth was supported by a volume growth of 8.8% YoY; continual cement price pressures eroded some of this positive impact.

Volumes were up by 8.8% YoY (-20.3% QoQ) to 1.3 million tonne (versus our estimate of 1.5 million tonne). However, blended realization declined more than estimates by 4.5% YoY and 0.7% QoQ to Rs 4,369/tonne. Ebitda rose 53.1% YoY (-31.5% QoQ) to Rs 0.5 billion (our estimate: Rs 0.4 billion). Ebitda/tonne rose 40.7% to Rs 364 due to substantial improvements in all operating costs.

Sagar Cements reported a net loss of Rs 0.3 billion (versus a loss of Rs 0.5 billion in Q1 FY24) due to operating deleverage and weak realisations.

The board also approved of the implementation of 6 mega watt Solar Power Plant at the company's Gudipadu Plant at a cost of around Rs 210 million; expected to be completed in six months. Trade Volumes stood at 53% of total sales versus 585 in Q1 FY24. Average lead distance shrunk to 255 kms during the quarter from 261 kms in Q1 FY24.

Debt to equity ratio stood at 0.74 times (versus 0.71 times in Q4 FY24). Capacity utilization for the quarter stood at 51%. Clinker conversion ratio improved to 1.39 times versus 1.32 times last quarter. The share of blended cement during the quarter moderated to 51.2% from 53% in Q4 FY24.

The company is trading at 11.0 times /8.6 times FY25E/FY26E enterprise value Ebitda.

We forecast a 16%/42% CAGR in revenue/Ebitda over FY24-FY26E backed by a 15% volume growth rate. We maintain Buy rating with a target price of Rs 322, which carries equal weight on EV/tonne (@70/tonne) and EV/Ebitda (10 times on FY26E).

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