'Buy' Sagar Cements Shares, Maintains Systematix Post Strong Q1 Results — Check Target Price

Sagar Cements is aggressively working towards ramping up its green power share and its massive capex towards upgrading the Dachepalli plant will rope in substantial cost savings.

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Systematix Report

On the back of robust demand and a strong pricing landscape, Sagar Cements Ltd. is well on track to improve efficiency and profitability through its various cost initiatives.

The company is aggressively working towards ramping up its green power share and its massive capex towards upgrading the Dachepalli plant will rope in substantial cost savings.

We believe the company is well positioned to leverage stable input prices and enhanced operating efficiency with higher utilization once the new plants are commissioned.

We maintain a Buy on the company with a target price of Rs326 valuing the company at 10x FY27E EV/Ebitda.

Sagar Cement Ltd.’s Q1 numbers were a positive surprise as revenue /Ebitda/PAT beat estimates due to better-than-expected realizations. Revenue grew by 19.6% YoY (+1.9% QoQ) to Rs 6.7 billion vs our estimate of Rs 5.6 billion. This growth was supported by volumes as well as realizations. Volumes were up by 11.5% YoY (-15.4% QoQ) to 1.43mt (vs our est. of 1.35mt).

Blended Realization improved by 7.3% YoY and 20.4% QoQ to Rs 4,690/tn. Ebitda rose sharply on both YoY and QoQ basis. Ebitda/tn doubled on YoY basis and stood at Rs 849 vs Rs 364 in Q1 FY25 due to stronger realizations and improved opex/tn.

Ebitda margin expanded by 978bps YoY to 18.1%. Raw material cost/tn saw a substantial decline of 50.6% on a YoY basis and 48.6% QoQ and stood at Rs 360. Power and fuel cost/tn declined marginally by 1.1% YoY but rose 12.1% on QoQ basis to Rs 1,574.

Freight cost/tn increased 7.2% YoY and 10.2% QoQ to Rs 906. Opex/tn declined by 8.5% YoY and 1.1% QoQ to Rs 3,615. The company reported a net profit of Rs 75 million after consistently reporting net loss in the past four quarters. Trade Volumes stood at 52% of total sales vs 53% in Q1 FY25.

Average lead distance for the quarter was 255kms, same as Q1 FY25. Debt to equity ratio stood at 0.86x (vs 0.74x in Q1 FY25). Capacity utilization for the quarter stood at 54%. The clinker conversion ratio improved to 1.41x vs 1.37x last quarter.

The share of blended cement during the quarter stood at 52%. The company is trading at 9.8x/7.7x FY26E/FY27E EV/Ebitda.

We forecast a 14%/96% CAGR in revenue/Ebitda over FY25-FY27E backed by an 8% volume growth rate. We revise our revenue/Ebitda estimates upwards by 5.8%/48.5% for FY26E and 3.3%/19.1% for FY27E backed by stronger realizations.

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