IGI Logo

Operating leverage a catalyst for turnaround

Result Synopsis

Sagar Cements (SGC) reported double-digit growth for revenue +16% y/y and EBITDA 83% y/y aided by +14% y/y volume and +2% y/y NSR growth coupled with eased total cost of 3% y/y in Q3FY24. EBITDA missed by 21% translating to Rs619/te (v/s YSECe Rs750/te) as power cost/te reduced lesser than our expectation. SGC continued to report net loss of Rs77mn in Q3FY24 v/s Rs220mn in Q3FY23 due to higher depreciation and interest outgo. However, the rising operating profit has reduced net loss from Rs423mn in Q2FY23 to Rs Rs77mn in this quarter.

Due of lower operating leverage and sluggish govt demand, management stripped its volume & EBITDA guidance to 5.6MT & Rs550/te for FY24E v/s 6.2MT & Rs650/te earlier. Therefore, we trimmed our Revenue & EBITDA estimate by 10% & 14%, which will result in net loss of Rs520mn (earlier YSECe +Rs372mn) for FY24E due to higher depreciation and interest outgo. Moreover, we have cut our FY25/26E revenue estimate by 11/9% and EBITDA by 17/13% as the expansion timelines delayed to FY26 end. We believe SGC to witness volume growth of ~15% CAGR over FY24-26E on account of increasing utilization of ACL/Jajpur assets. However, a stable pricing environment in the east & south will be vital for our estimates. Improved operating leverage to aid SGC to generate healthy cashflow, which should fund ongoing capex and deleverage B/S (guidance Net Cash by FY28E) which should rerate the stock. At CMP, the company trades at 11/9x EV/EBITDA and $58/50 EV/tonne on FY25/26E. We valued the stock at 10x EV/EBITDA ($58 EV/te) and arriving at TP of Rs323/share with BUY rating on FY26 estimate.

Result Highlights

Improved utilization of ACL and Jeerabad capacity resulted in +14% y/y volume growth to 1.41MTPA (YSECe 1.46MTPA), though volumes were affected by state elections and labor shortages during the festive season.

In Q3FY24, NSR increased by +2% y/y coupled with healthy volume, drives +16% y/y revenue growth to Rs6.7bn (v/s YSECe Rs6.8bn).

Total cost declined by 3% y/y (5% above YSECe) aided by eased power & other cost/te by 12/5% y/y in Q3FY24.

EBITDA grew by +83% y/y and +45% q/q to Rs871mn, translating to Rs619/te (+61% y/y), which is 18% below YSECe due to higher-than-expected power cost.

EBITDA margin improved from 10.3% in Q2FY24 to 13% in Q3FY24 against 8.3% in Q3FY23 and management guided to improve in Q4FY24 with better utilization

In Q3FY24, the company reports a net loss of Rs77mn as compared to a net loss of Rs232mn in Q3FY23 on account of higher interest outgo.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632