Shuvh Nivesh pick 📈📉
(1/n)
🔸Stock Name: Sagar Cements
🔸Target: Rs. 305
🔸Upside Potential: ~24%
🔸Timeframe: 12 months
(1/n)
🔸Stock Name: Sagar Cements
🔸Target: Rs. 305
🔸Upside Potential: ~24%
🔸Timeframe: 12 months
(2/n)
🟧 Investment Rationale
🔸On an expansion spree
🔹Sagar Cements has been one of the fastest growing cement companies wherein its capacity has nearly doubled from 5.8 MT in FY19 to 10 MT currently (~15% CAGR)
🟧 Investment Rationale
🔸On an expansion spree
🔹Sagar Cements has been one of the fastest growing cement companies wherein its capacity has nearly doubled from 5.8 MT in FY19 to 10 MT currently (~15% CAGR)
(3/n)
🔹In FY23, company recorded robust volume growth of 34% YoY to 4.8 MT mainly driven by commissioning of new capacities in Jeerabad, MP (Central: 1.0 MT) and Jajpur, Odhisa (East: 1.5 MT)
🔹In FY23, company recorded robust volume growth of 34% YoY to 4.8 MT mainly driven by commissioning of new capacities in Jeerabad, MP (Central: 1.0 MT) and Jajpur, Odhisa (East: 1.5 MT)
(4/n)
🔹The Jeerabad facility has witnessed swift ramp-up with utilisation rates already at 80%+ levels and generating Rs. 840+ EBITDA/T in Q1FY24E
🔹Recently, it acquired Andhra Cements (1.8 MT) to further consolidate its position in southern markets
🔹The Jeerabad facility has witnessed swift ramp-up with utilisation rates already at 80%+ levels and generating Rs. 840+ EBITDA/T in Q1FY24E
🔹Recently, it acquired Andhra Cements (1.8 MT) to further consolidate its position in southern markets
(5/n)
🔹Operations have commenced from Q1FY24E (sold ~30K Ton volumes) and the management expects the new facility to add ~ 0.75 MT volumes in FY24 (42% CU)
🔹Operations have commenced from Q1FY24E (sold ~30K Ton volumes) and the management expects the new facility to add ~ 0.75 MT volumes in FY24 (42% CU)
(6/n)
🔹While company’s performance in Q1FY24 was tepid (mainly owing to maintenance shutdown at its mother-plant in Mattampally), we expect the volumes & profitability trajectory to improve in the ensuing quarters
🔹While company’s performance in Q1FY24 was tepid (mainly owing to maintenance shutdown at its mother-plant in Mattampally), we expect the volumes & profitability trajectory to improve in the ensuing quarters
(7/n)
🔹We model in volume growth of 25% YoY to 6.0 MT in FY24E and 10% YoY to 6.7 MT by FY25E. Benefit of declining fuel costs expected to flow from Q2FY24 onwards (~ Rs. 100/t in Q2 and further reduction expected in H2FY24)
🔹We model in volume growth of 25% YoY to 6.0 MT in FY24E and 10% YoY to 6.7 MT by FY25E. Benefit of declining fuel costs expected to flow from Q2FY24 onwards (~ Rs. 100/t in Q2 and further reduction expected in H2FY24)
(8/n)
🔸B/S deleveraging to begin from FY25E
🔹Higher capex over 4 years (including acquisition of Andhra Cements) has resulted in gross debt bloating from ~ Rs. 400 crore in FY20 to Rs. 1470 crore as on FY23 (D/E: 0.9x)
🔸B/S deleveraging to begin from FY25E
🔹Higher capex over 4 years (including acquisition of Andhra Cements) has resulted in gross debt bloating from ~ Rs. 400 crore in FY20 to Rs. 1470 crore as on FY23 (D/E: 0.9x)
(9/n)
🔹Going forward, company is looking for mainly brownfield expansion (in Jeerabad, Gudipadu & Andhra Cements) which could entail lower capex requirements
🔹We build in capex of Rs. ~ 400 crore over FY24-25E (incurred capex of Rs. 1300+ crore in last 2 years)
🔹Going forward, company is looking for mainly brownfield expansion (in Jeerabad, Gudipadu & Andhra Cements) which could entail lower capex requirements
🔹We build in capex of Rs. ~ 400 crore over FY24-25E (incurred capex of Rs. 1300+ crore in last 2 years)
(10/n)
🔹We expect the company to generate steady free cash flow (FCF) & model in debt reduction of ~Rs 350 cr by FY25E (D/E: 0.6x)
Though not factored in our estimates, Vizag land sale (part of Andhra Cement acquisition) could further help deleverage the b/s (worth~ Rs 400 cr)
🔹We expect the company to generate steady free cash flow (FCF) & model in debt reduction of ~Rs 350 cr by FY25E (D/E: 0.6x)
Though not factored in our estimates, Vizag land sale (part of Andhra Cement acquisition) could further help deleverage the b/s (worth~ Rs 400 cr)
(11/n)
🟥 Rating and Target Price
♦️Sagar Cement is trading at attractive valuations (US$ 50/t vs replacement cost of US$ 110/t)
♦️Sagar Cement is an attractive regional play in the southern cement markets & has demonstrated the ability to be one of the lowest cost producers
🟥 Rating and Target Price
♦️Sagar Cement is trading at attractive valuations (US$ 50/t vs replacement cost of US$ 110/t)
♦️Sagar Cement is an attractive regional play in the southern cement markets & has demonstrated the ability to be one of the lowest cost producers
(12/n)
♦️Hence, we ascribe BUY rating on the stock. We value Sagar at Rs. 305 i.e. 10x FY25E EV/EBITDA
Disclaimer: Disclaimer: bit.ly
♦️Hence, we ascribe BUY rating on the stock. We value Sagar at Rs. 305 i.e. 10x FY25E EV/EBITDA
Disclaimer: Disclaimer: bit.ly
(13/n)
🟥 Key Financial Summary
🟥 Key Financial Summary
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