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Sagar Cements’ EBITDA came in 10-15% below our/consensus estimates in Q3FY24. On a favorable base, EBITDA grew 83% YoY/45% QoQ to Rs871mn (Emkay estimate: Rs980mn). On a sequential basis, EBITDA/t improved by Rs160/t to Rs619 mainly driven by a sharp increase in realization (up Rs286/t QoQ) to Rs4,757/t. However, higher-than-expected input costs led to a miss in our estimates. Volume grew 14% YoY (in-line with estimates) to 1.4mt in Q3FY24 mainly led by ramping up of new capacities in Jeerabad and Andhra Cements. Management has revised its volume guidance downwards to 5.6mt for FY24 (earlier 6.2mt), which implies 25% YoY growth in Q4FY24. Factoring in the Q3 miss and lower volumes, we have revised our EBITDA estimates downwards by 6-8% in FY25-26. We maintain our ADD rating with a revised Dec-24E TP of Rs300/share (10x EV/E).

Sagar Cements: Financial Snapshot ( Consolidated)

Result Summary:

Volumes increased 14% YoY to 1.4mt on account of ramping up of new capacities in Jeerabad (MP) and recently acquired Andhra Cements (78% QoQ to 0.17mt). Given the healthy uptick in cement prices for the southern region, realization improved by 6% QoQ to Rs4,757/t in Q3FY24. RM+P&F costs increased by Rs138/t, which limited the benefit of higher realization. Total cost/t increased 3% QoQ to Rs4,138 (>Rs126/t QoQ). Subsequently, EBITDA/t improved Rs160/t QoQ to Rs619 (Emkay est. Rs700). The board has approved clinker/cement capacity addition of 0.65mt/ 1.18mt in its subsidiary, Andhra Cements. The project cost is estimated at Rs4.7bn (USD47/t), and it is likely to be commissioned by FY26-end. Post expansion, Sagar’s overall clinker/cement capacity will rise to 7mt/11.3mt. Net debt increased by Rs190mn QoQ to Rs14.0bn as of Dec-23.

What we liked: Better-than-anticipated cement realization and ramping of new capacities

What we did not like: Increased net debt and downward revision in volume guidance

Key Concall Takeaways: i) Management is targeting 7mt volume (+25% YoY) for FY25 (earlier 7.5mt), assuming demand might taper down due to general elections. Andhra Cements will likely have volumes of 0.9-1mt in FY25 (CU: 50-55%). ii) Sagar has revised its EBITDA guidance downwards to Rs3.1bn (earlier Rs4bn) in FY24, which implies EBITDA/t of Rs770-780 in Q4FY24. iii) Management expects a potential input cost saving of Rs100/t and operating leverage (Rs50/t) QoQ in Q4FY24. iv) Besides Andhra Cements’ expansion, the company is looking to increase capacity by 0.5mt at Jeerabad and 0.25mt at Gudipadu in 9-12 months and is currently awaiting EC clearance for the same. v) Out of the overall capex of Rs4.7bn (about the expansion in Andhra Cements), 30%/50% will likely be spent in FY25/26E. vi) Cement prices are broadly stable from the exit of Dec-23 levels; management expects realization to remain stable as the company is not chasing lowcost orders. vii) For Jeerabad plant, capacity utilization stood at 69% in Q3FY24 and an incentive of Rs300mn is due and is likely to be received in the current quarter.

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