performance beat on stronger realisations€¦ · sagar cements cement | india institutional equity...

Sagar CementsCMP* (Rs) 665

Upside/ (Downside) (%) 20

Bloomberg Ticker SGC IN

Market Cap. (Rs bn) 14

Free Float (%) 50

Shares O/S (mn) 20

Cement | India

Institutional Equity Research

1QFY20 Result Update | July 25, 2019

1

BUYTarget Price: Rs800

Performance Beat on Stronger Realisations

Share price (%) 1 mth 3 mth 12 mth

Absolute performance 8.1 8.6 (14.9)

Relative to Nifty 11.8 12.5 (16.1)

Shareholding Pattern (%) Jun-19 Mar-19

Promoter 50.1 50.1

Public 49.9 49.9

Key Financials (Consolidated)(Rs mn) FY19 FY20E FY21E

Sales 12,176 14,104 16,855

EBITDA 1,494 2,622 3,194

Net Profit 136 870 1,045

P/E (x) 99.8 18.0 15.0

P/B (x) 1.6 1.4 1.3

EV/EBITDA 12.3 7.8 7.5

RoE (%) 1.7 9.0 9.1

Change of Estimates(% change) FY20E FY21E

Sales 0.2 1.2

EBIDTA 6.1 9.2

EBITDA/tonne 7.3 9.2

APAT 19.2 21.8

1 Year Stock Price Performance

Note: * CMP as on July 25, 2019

Consolidated Quarterly Performance (Rs mn) 1QFY20 1QFY19 % YoY 4QFY19 % qoq

Net Sales 3,442.0 2,749.0 25.2 3,658.4 (5.9)

Total Expenses 2,655.8 2,384.6 11.4 3,040.9 (12.7)

EBIDTA 786.2 364.4 115.8 617.5 27.3

EBIDTA/tonne (Rs) 958.6 491.7 95.0 654.0 46.6

PBT 473.2 92.4 412.1 287.1 64.8

PAT 295 58.2 407.0 187.5 57.4

Net Margins 8.6 2.1 5.1

Source: Company, RSec Research

Research Analyst: Binod Modi

Contact: 022 3303 4626

Email: [email protected]

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Sagar Cements (SGC) has reported a better-than-expected performance in 1QFY20 mainly aided by higher-than-expected jump in average realisation, which stood at Rs4,192/tonne (13.4% YoY and 8.2% QoQ). Consolidated EBITDA grew by a strong 116% YoY (+27% QoQ) to Rs786mn way ahead of our estimate of Rs658mn, while EBITDA/tonne improved to Rs959 vs. Rs492 in 1QFY19 and Rs654 in 4QFY19. Notably, standalone EBITDA/tonne stood at Rs859 (vs. Rs399 in 1QFY19 and Rs593 in 4QFY19), with Gudipadu (AP) plant witnessing a strong EBITDA/tonne of Rs1,254 vs. Rs748 and Rs823 in 1QFY19 and 4QFY19, respectively. Further, operating cost/tonne broadly remained flat on YoY and QoQ basis at Rs3,238, while input cost/tonne (RM+ P&F) rose by 1.1% YoY (-1.8% QoQ) Rs1,794. Consolidated PAT zoomed 407% YoY and 47% QoQ to Rs295mn vs. our estimate of Rs210mn. Notably, SGC’s standalone PAT stood at Rs245mn. Going forward, considering stronger realisation, consistent traction in Bayyavaram SGU and new geographies, we foresee SGC to witness a healthy traction, going ahead. Raising our EBITDA estimate by 6%/9% for FY20E/FY21E to factor in higher-than-expected realisation, we maintain our BUY recommendation on the stock with a revised Target Price of Rs800 (from Rs740 earlier).

Healthy Revenue Growth on Strong Volume & Realisation Consolidated sales volume grew by ~11% YoY (-13% QoQ) to 0.82mnT, which along with strong realisation aided ther Company to witness 25% YoY (-6% QoQ) growth in revenue to Rs3.4bn. Production ramp-up in Bayyavaram unit resulted in healthy YoY sales volume. Utilisation at Mattampally and Gudipadu units stood at 49% and 69%, respectively, while Bayyavaram utilisation stood at mere 53% at expanded capacity.

Robust Recovery in Operating PerformanceA sharper-than-expected improvement in average realisation along with steady growth in sales volume aided SGC to report a strong 116% YoY growth in EBITDA to Rs786mn. Consolidated EBITDA/tonne improved to Rs959 vs. Rs492 in 1QFY19 and Rs654 in 4QFY19. Average realisation improved by +13.4% YoY and +8.2% QoQ to Rs4,192 mainly due to sharp price recovery in its key markets and higher trade sales (48% vs. 44% in 4QFY19). Going forward, we expect SGC to report EBITDA/tonne of Rs734 and Rs755 in FY20E and FY21E, respectively mainly to be aided by firm realisation and improved cost efficiency.

Outlook & ValuationRobust realisation was the sole factor for stronger performance in 1QFY20, while we expect this to cool off a bit in the current quarter due to sharp correction in realisation especially in AP and Telangana markets. However, commissioning of 18MW CPP in Aug’19, likely improvement in realisations post monsoon and complete synergies from Bayyavaram SGU are likely to aid its operating performance in subsequent quarters. We reiterate our BUY recommendation on the stock with a revised Target Price of Rs800 (8x of FY21 EBITDA).

Sagar CementsCement | India


2

CMP* (Rs) 665




Conference Call – Key Highlights

f Demand Scenario: Despite demand disruption 1QFY20 led by projects cancellation and payment issues from the clients, the Management has maintained its stance about demand growth in FY20. It continues to foresee demand in AP+Telangana to rise by merely 2-3% in FY20 in light of a considerable slowdown in the government’s spending. Further, Karnataka and TN+Kerala are likely to grow by 5% each, while Maharashtra and Odisha are expected to grow by 5% and 10%, respectively.

f State-wise Consumption in FY19: AP+Telangana (31mnT), Karnataka (20.5mnT), Tamil Nadu (20mnT), Kerala (9.5mnT), Maharashtra (32mnT) and Odisha (12mnT).

f Pricing in Core Markets: With Rs5-10/bag price correction so far in the current quarter, SGC broadly expects the prices to correct further by Rs5-10/bag in rest of monsoon period. SGC cited that 1QFY20 average price should essentially be a normalised price and hence price recovery could be on the cards post monsoon. For SGC, non-trade price currently stands at Rs275-280, while trade price hovers at Rs300/bag.

f Fuel Cost & Usage: Average petcoke and coal price for 1QFY20/4QFY19 stood at Rs9,036/Rs9,529 and Rs5,197/Rs4,050/tonne, respectively. Average fuel cost for FY19 stood at Rs1.1/kcal and SGC expects it to be at Rs1.05/kcal in FY20.

f Sand Issues in AP & Telangana: Sand issues erupted after the new government was formed in AP. However, SGC believes that payment overdue from the state governments is the major issue in the states. SGC expects new sand mining policy on 5th Sept’19.

f Lead Distance & Freight Cost: Yearly reduction in freight cost/tonne (-11% YoY) is attributable to reduction in lead distances to 285kms. Further, a marginal reduction in lead distance is expected.

f Benefits from WHRS, Hydel Power & CPP: While WHRS is currently accruing ~Rs50mn/quarter for SGC, post commissioning of 18MW CPP at Mattampally in Aug’19, the Management expects a total annual savings to the tune of Rs200mn after ramp-up period of 7-8 months. Further, 8MW of hydel power is expected to save Rs70mn in power cost.

f Capex Progress: 18MW CPP at Mattampally unit is to be commissioned in Aug’19. The Management cited that ground work has started in Sadguru unit, which is expected to be commissioned by Mar’21. The peak debt – post factoring in Rs4.75bn new debt for acquisition – is expected to touch Rs8bn.

Risks to the View f Government’s failure to revive infrastructure projects.

f Any substantial increase in operating cost.



3

CMP* (Rs) 665




Exhibit 1: Consolidated Result Summary

(Rs mn) 1QFY20 1QFY19 % YoY 4QFY19 % qoq

Net Sales 3,442.0 2,749.0 25.2 3,658.4 (5.9)

Cement 3,438.8 2,741.1 25.5 3,657.7 (6.0)

Power 3.2 7.9 (59.5) 0.7 357.1

Cost of Materials Consumed 574.2 341.2 68.3 650.1 (11.7)

Change in WIP (73.5) 168.3 (143.7) 8.3 (985.5)

Purchase of Stock in Trade 106.4 65.6 62.2 78.4

% sales 17.6 20.9 20.1

Employee Benefit Expenses 147.3 141.2 4.3 158.7 (7.2)

% sales 4.3 5.1 4.3

Power & Fuel 869.6 755.6 15.1 988.4 (12.0)

% sales 25.3 27.5 27.0

Freight & Forwarding 600.6 587.8 2.2 669.4 (10.3)

% sales 17.4 21.4 18.3

Other Expenses 431.2 324.9 32.7 487.6 (11.6)

% sales 12.5 11.8 13.3

Total Expenses 2,655.8 2,384.6 11.4 3,040.9 (12.7)

Operating cost/tonne (Rs) 3,238 3,218 0.6 3,221 0.5

EBIDTA 786.2 364.4 115.8 617.5 27.3

EBIDTA margins 22.8 13.3 16.9

EBIDTA/tonne (Rs) 958.6 491.7 95.0 654.0 46.6

Depreciation 178.0 136.3 30.6 174.0 2.3

Interest 149.5 141.1 6.0 165.3 (9.6)

Other Income 14.5 5.4 168.5 8.9 62.9

PBT 473.2 92.4 412.1 287.1 64.8

Tax 178.1 34.2 420.8 99.6 78.8

% PBT 37.6 37.0 34.7

PAT 295 58.2 407.0 187.5 57.4

Net Margins 8.6 2.1 5.1




4

CMP* (Rs) 665




Exhibit 2: Cost per tonne

Cement- Rs/tonne 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20

Sales volume (mnT) 0.47 0.64 0.64 0.60 0.68 0.80 0.74 0.72 0.92 0.94 0.82

RM Costs 377 738 579 332 596 601 776 526 759 780 740

Employee Costs 206 186 173 211 174 199 191 214 146 168 180

Power & Fuel 1,284 1,185 1,284 1,390 1,148 1,109 1,020 1,241 1,079 1,047 1,060

Freight & Selling Costs 826 635 805 840 778 796 793 826 733 709 732

Other Expenditures 737 495 551 514 507 512 438 495 420 516 526

Total Cost 3,429 3,239 3,392 3,288 3,203 3,217 3,218 3,301 3,138 3,221 3,238

Realizations/tonne 4,004 3,590 4,023 3,908 3,655 3,692 3,699 3,563 3,441 3,874 4,193

EBITDA/tonne (Rs) 625 405 666 643 465 487 492 294 327 654 959


Exhibit 3: Revised vs. Old Estimates

FY20E FY21E

Old Revised % change Old Revised % change

Volume (mnT) 3.61 3.57 (1.2) 4.23 4.23 -

NCR- Sagar (Rs/tonne) 3,868 3,862 (0.2) 3,906 3,900 (0.2)

NCR- BMM (Rs/tonne) 3,926 4,149 5.7 3,990 4,200 5.3

Sales (Rs mn) 14,082 14,104 0.2 16,659 16,855 1.2

EBIDTA (Rs mn) 2,472 2,622 6.1 2,924 3,194 9.2

EBIDTA margins (%) 17.6 18.6 17.5 18.9

EBITDA/tonne (Rs) 684 734 7.3 691 755 9.2

APAT (Rs mn) 730 870 19.2 858 1,045 21.8

Source: RSec Research



5

CMP* (Rs) 665




Profit & Loss Statement (Consolidated)

Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E

Net Sales 10,381 12,176 14,104 16,855

% yoy growth 27.6% 17.3% 15.8% 19.5%

Total Cost 8,868 10,681 11,482 13,662

EBIDTA 1,513 1,494 2,622 3,194

EBIDTA Margin (%) 14.6% 12.3% 18.6% 18.9%

EBITDA/tonne (Rs) 557 450 734 755

Depreciation and Amortisation 536 657 732 838

Interest 593 634 582 780

Other Income 73 29 30 32

PBT 457 232 1,339 1,607

Tax 194 96 469 563

% Tax 42.5 41.4 35.0 35.0

Net Profit 263 136 870 1,045

YoY Growth (%) (48.2) 540.3 20.0

Net Profit Margin (%) 2.5 1.1 6.2 6.2



6

CMP* (Rs) 665




Balance Sheet (Consolidated)


SOURCES OF FUNDS

Share Capital 204 204 235 235

Reserves & Surplus 7,588 8,234 10,699 11,673

Total Shareholder's funds 7,792 8,438 10,934 11,908

Non-Current Liabilities

Long Term Borrowings 3,297 3,058 3,358 6,358

Deferred Tax Liabilities (net) 403 411 411 411

Other Long Term Liabilities 529 569 663 781

Long Term Provisions 39 73 93 89

Total 4,269 4,111 4,525 7,639

Current Liabilities

Short Term Borrowings 1,153 1,389 1,489 1,689

Trade Payables 1,368 2,038 2,340 2,757

Other Current Liabilities 1,102 1,607 2,049 1,963

Short Term Provisions 23 28 35 34

Total 3,645 5,062 5,912 6,442

TOTAL LIABILITIES 15,706 17,611 21,371 25,989

Non-current Assets

Fixed Assets

Tangible Assets 9,850 11,783 11,551 11,213

In-Tangible Assets 288 271 271 271

Capital Work - in- Progress 1,254 1,101 4,101 8,601

Goodwill on Consolidation 387 387 387 387

Deferred Tax Asets (Net) 319 328 328 328

Long - term Loans & Advances 692 353 412 485

12,790 14,224 17,050 21,285

Current Assets

Inventories 949 1,450 1,620 1,908

Receivables 926 1,156 1,332 1,569

Cash & Bank 581 295 624 348

ST Advances 208 208 242 285

Other current Assets 253 279 504 594

Total Current Assets 2,916 3,388 4,321 4,704

Total Assets 15,706 17,611 21,371 25,989



7

CMP* (Rs) 665




Cash Flow Statement (Consolidated)


PBT 457 232 1,339 1,607

Adjustment:-

Depreciation 536 657 732 838

Interest and Fin Charges 593 634 582 780

Others (62) 16 - -

Cash generated from Operations 1,524 1,539 2,653 3,225

Change in WC 120 (107) 201 (288)

Net Cash generated from Operations 1,643 1,431 2,854 2,938

Income Tax paid (144) (38) (469) (563)

Net Generation from Op. Actitivities 1,499 1,393 2,385 2,375

Purchase of Fixed Assets (1,965) (1,954) (3,500) (5,000)

LT Investment in Subsidiary 3 - - -

Sale of investment - - - -

Others 79 36 - -

Net cash used in Investing Activities (1,883) (1,918) (3,500) (5,000)

Proceed from Debentures - - - -

Proceed/(Repayment) of Loans (Net) (80) 307 400 3,200

Proceeds from Issue of Shares & Warrants - 566 1,696 -

Dividend Paid (98) (37) (71) (71)

Interest and Finance charges (590) (618) (582) (780)

Others 1 90 - -

Net cash used in Financing Activities (767) 307 1,443 2,349

Net Change in Cash (1,151) (217) 329 (276)



8

CMP* (Rs) 665




Key Ratio (Consolidated)

Y/E Mar FY18 FY19 FY20E FY21E

Valuation Ratio (x)

P/E 51.7 99.8 18.0 15.0

P/CEPS 17.0 17.1 9.8 8.3

P/BV 1.7 1.6 1.4 1.3

EV/EBIDTA 11.7 12.3 7.8 7.5

EV/Sales 1.7 1.5 1.5 1.4

EV/tonne (US$) 63.5 61.7 68.9 80.6

Dividend Payout (%) 31.1 22.5 6.8 5.6

Dividend Yield (%) 0.6 0.2 0.4 0.4

Per Share Data (Rs)

EPS (Basic) 12.9 6.7 37.0 44.5

EPS (Diluted) 12.9 5.8 37.0 44.5

CEPS 39.2 38.9 68.2 80.1

DPS 4.0 1.5 2.5 2.5

Book Value 382 414 465 507

EBIDTA/tone (Rs) 557 450 734 755

Returns (%)

RoCE 8.4 6.6 12.8 12.9

RoE 3.4 1.7 9.0 9.1

Turnover ratios (x)

Asset Turnover 0.8 0.8 0.9 1.0

Inventory (days) 37 47 45 45

Receivables (days) 36 37 37 37

Payables (days) 54 66 65 65

WCC (days) 20 18 17 17



9

CMP* (Rs) 665




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Rating GuidesRating Expected absolute returns (%) over 12 monthsBUY >10%

HOLD -5% to 10%

REDUCE >-5%

PLEASE CLICK HERE FOR PREVIOUS REPORTS

Rating HistoryDate Reco CMP TP

23-May-19 BUY 626 740

31-Jan-19 BUY 588 670

30-Oct-18 BUY 632 750

20-July-18 HOLD 739 790

30-May-18 BUY 924 1050

25-Jan-18 BUY 1037 1200

1-Nov-17 BUY 869 1000

31-Jul-17 BUY 841 1050

1-Jun-17 BUY 861 1000

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performance beat on stronger realisations€¦ · sagar cements cement | india institutional equity...

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