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Weak quarter; leverage to remain elevated

Sagar Cements’ EBITDA came in 10-12% below our/consensus estimates in Q4FY24, mainly attributable to weak realizations. EBITDA declined 22% QoQ (up 75% YoY) to Rs681mn (Emkay estimate: Rs745mn). On a sequential basis, EBITDA/t fell by Rs197 to Rs422 as realizations dipped by Rs365 QoQ. Volume growth remained steady at 19% YoY to 1.6mt (in line with estimates), mainly led by ramping up of new capacities in Jeerabad and Andhra Cements. Management has revised its volume guidance downwards to 6.5mt for FY25 (implying 18% YoY growth; earlier 7mt), sighting the slowdown in demand during H1FY25. We anticipate net debt levels to remain elevated at Rs13bn. Factoring in the Q4 miss and lower volumes/realization, we have cut our EBITDA by 14-16% in FY25-26E. We maintain our ADD rating with a revised Mar-25E TP of Rs250/share (10x EV/E) post quarterly roll-over.

Result Summary:

Volumes increased 19% YoY to 1.6mt on account of ramping up of new capacities in Jeerabad (MP) and the recently acquired Andhra Cements (32% QoQ to 0.23mt). Overall capacity utilization during quarter stood at 60%. Given the weak cement prices for the southern region, realization declined by 8% QoQ to Rs4,392/t in Q4FY24. Total cost/t was down 4% QoQ to Rs3,969, mainly due to decrease in RM+P&F cost by 7% QoQ. Average lead distance increased marginally QoQ to 258km (Q3FY24: 255km, Q4FY23: 271km). Company generated FCF of Rs353mn after working capital release of Rs1.5bn (trade payables days increased by 17 days YoY) and capex of Rs2bn. During the quarter, net debt declined by Rs2.2bn QoQ to Rs11.8bn as on Mar-24. Among the upcoming projects, capacity expansion in Andhra Cement is on track (to increase capacity from 2.25mt to 3mt) and is likely to be completed by FY26. We expect net debt levels to remain elevated at Rs12.5-13bn on the back of increased capex intensity (cumulative capex of Rs5bn in FY25-26E). What we did not like: Lower-than-expected EBITDA and downward revision of volumes guidance.

Key Concall Takeaways:

i) The management indicated that demand continues to remain weak in Q1 owing to elections and it expects volumes to dip to early double digits YoY in Q1FY25. Expecting strong growth in H2, led by ramping up of new capacities. ii) Currently, cement prices are Rs5-10/bag lower than March exit and Rs10-12/bag lower than Q4FY24 average prices. iii) Owing to benign RM prices, Company expects fuel costs to decline by Rs100/t QoQ in Q1FY25. iv) Company has guided capex of Rs3.3-3.5bn for FY25E out of which Rs2.2-2.7bn pertains to Andhra Cement expansion (overall capex of Rs4.7bn) and Rs250-270mn toward installing 6MW solar plant in Gudipadu. v) For Andhra Cement expansion, Company has placed orders for critical equipment and civil work has already started. Through modernization, the company is looking to improve the plant’s thermal efficiency from 800Kcal to 700Kcal. vi) Besides Andhra Cements’ expansion, the company is looking to increase capacity by 0.5mt at Jeerabad and 0.25mt at Gudipadu by FY26E.

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