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Nirmal Bang Report
Sagar Cements Ltd. is one of our preferred picks in small cap cement space and we believe that it is one of the best small cap ideas with a potential of exponential gains over the next three to four years.
We believe that multiple factors like improvement in demand scenario in Sagar Cements' core markets (on the back of weak base of past year), relatively better realizations (after hitting inflation adjusted decadal low in Q3 FY20) in recent times, efficient operations and new capacities coming up in new better regions augurs well for the company.
We expect substantial improvement in cash profits for the company over FY20-FY22 as we expect Ebitda and profit after tax growth of 29% and 75% respectively over the same period.
We like Sagar Cements expansion strategy in which the company has carefully selected plants to acquire on opportunistic basis at relatively lower valuations and higher scope for further expansion.
We believe that the upcoming expansion at Odisha and Madhya Pradesh will diversify the Company's revenue and profitability streams and also lower the volatility in earnings.
We are expecting the ramp-up of new facilities to be faster and also believe that there is a good chance that these new facilities will achieve higher utilization within first year of operation for the company compared to existing facilities.
Higher leverage is part of this expansion phase for the company but in our view, the management is well equipped to tackle the same as cashflows improve.
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