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Our view and valuation: Beat on all front

* Sagar cements has delivered strong volume/EBITDA growth of 58.5%/23.1%YoY growth aided by higher net realization and lower clinker cost. Sagar reported volumes of 0.88MT for the quarter wherein Andhra Pradesh and Telangana contributed 55% as there was covid related restrictions in other regions. Blended NSR/te came in at Rs4463/te.

* We have upgraded our EBITDA estimates by 16%/17% translating in absolute EBITDA of Rs3.46bn/Rs4.91bn for FY22E/23E to accommodate lower cost of clinker production due to inventory spill over in the quarter. And EPS has moved up by 29.8%/30.8% for FY22E/23E.    

* Currently, at CMP of Rs1301/share, company trades at 6.9x of FY23E EV/EBITDA. On the back of better demand scenario, strong stable prices and better than expected profitability, we assigned 8x FY23E EV/EBITDA which translates in price target of Rs1,501/share with potential upside of 15.4% upside (previous TP of Rs1,051/share). We maintain our BUY rating on stock.

Result Highlights:

* For quarter company delivered cement volumes of 0.88MT (‐14%QoQ/58.5%YoY) Blended cement NSR/te came in at Rs4463/te translating in 310/bag on the back higher proportion of non‐trade sales. Reported net sales of Rs3.93bn (‐ 6%QoQ/48.6%YoY).

* Company delivered strong EBITDA of Rs1.07bn (2.7%QoQ/23.1%YoY) on the back higher net realization and lower clinker production. Operating margins came in at 27.3% (232bps QoQ/‐566bps YoY) and reported EBITDA/te at Rs1218/te.  

* Adjusted PAT for the quarter came in at Rs514mn (3%QoQ/42.9%YoY)   

* Power and fuel cost grew by 32% sequentially while freight cost grew by 3% wherein 99.7% of volumes were transported by road and lead distance has marginally increased by 3km to 288km.

* Mattampally plant’s utilization stood at 56%, Gudipadu stood at 78% and Bayyavaram at 59%.

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