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Sagar Cements reported an in-line performance in Q1FY25, with EBITDA increasing 53% YoY/declining 32% QoQ to Rs467mn (Emkay est: Rs446mn). On a sequential basis, EBITDA/t fell by Rs66 to Rs356 as realizations dipped by Rs222 QoQ. Volume growth was steady at 9% YoY, to 1.28mt (in line with estimates). The management maintained volume guidance of 6.5mt, with FY25 EBITDA/t ranging at Rs540-575, which looks challenging in our view. Net debt increased by Rs1.2bn sequentially to Rs13bn, as of Jun-24, and we expect it to maintain similar levels for a couple of years on the back of increase in capex intensity. Factoring in the lower realization, we cut FY25-26E EBITDA by 10- 17% and introduce our forecast for FY27. We maintain ADD on the stock, with unchanged Jun-25E TP of Rs250/share (10x EV/E) post quarterly roll-over. At CMP, the stock is trading at FY26E EV/t of US$46.

Result Summary:

Volumes increased 9% YoY to 1.28mt (excluding clinker volumes of ~84k) on account of ramping up of capacities in the recently acquired Andhra Cements. Overall capacity utilization during the quarter was ~50%. Given weak cement prices for the southern region, realization declined 5% QoQ to Rs4,170/t in Q1FY25. Total cost/t was down 12% YoY/4% QoQ to Rs3,814, mainly due to decline of 5% QoQ in RM+P&F costs. Average lead distance declined marginally QoQ to 255km (Q4FY24: 258km; Q1FY24: 261km). During the quarter, net debt increased by Rs1.2bn QoQ to Rs13bn as of Jun-24, and we expect it to remain at similar levels for the next couple of years on the back of increased capex intensity (cumulative capex of Rs7bn in FY25E-27E). Of the upcoming projects, the company has proposed to expand cement capacities of the Gudipadu and Jeerabad plants by 0.25mt and 0.5mt, respectively, by FY26. Besides, the mgmt. aims to expand clinker capacity, from 1.85mt to 2.31mt, and cement capacity to 3mt from 2.25mt at the Dachepalli plants by end-FY26. The proposed capex for expansion is likely to be Rs4.7bn.

What we like: Better than industry volume growth

What we did not like: Increase in net debt

Key Concall Takeaways:

i) The management maintained its volume guidance of 6.5mt (+18% YoY) for FY25, implying 20% growth run-rate for remaining Quarters. Besides, it has guided to absolute EBITDA of Rs3.5-3.75bn, with EBITDA/t to range at Rs540-575 in FY25. ii) The management does not expect prices to improve till mid-Q3FY25. iii) Cement prices have further declined by Rs5/bag since the end of Jun-24. iv) Fuel costs broadly are likely to be stable in coming quarters. v) Capex spends stood at Rs300mn in Q1FY25 and the management has guided to Rs3bn for FY25. vi) The management expects to see breakeven in Andhra Cements by Q1FY26. viii) Net debt is likely to be capped in the Rs12- 13bn range. ix) Sagar expects incentives of ~Rs300mn in FY25, for its Jeerabad plant

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