Buy This Smallcap Cement Stock For 26% Return, Capacity Increased By 43%, Says Top Brokerage

Top brokerage firm Emkay Global, in a report, suggests investors buying the stocks of Sagar Cement. Sagar has recently increased its capacity by 43% to 8.3mt and is likely to register an industry-leading volume CAGR of 19% over FY22-25E, aided by a low base and capacity expansion.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Sagar Cement is Rs. 178. Emkay Global has estimated a Target Price for the stock at Rs. 225. This stock has the potential to give a 26.30% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 2,395 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 178
Target Price	Rs. 225
Potential 1 year return	26.30%
52 week high share price	Rs. 317.00
52 week low share price	Rs. 154.00

Sagar Cement's Q1FY23 EBITDA fell 43% YoY but remained flat QoQ at Rs. 610mn, in line with our estimates. EBITDA/ton declined by 58% YoY/5% QoQ to Rs. 514. In May, 2022, the company issued 13.2mn equity shares (10% stake) to Premji Invest at Rs. 265/sh, totalling Rs. 3.5bn, to fund growth capex.

Emkay Global: Should You Buy This Stock?

Commenting on the advantages of the stock, the brokerage firm stated, "Sagar is aiming for a 6-month inventory as coal/petcoke prices stabilize. The current fuel mix is 70% domestic coal and 30% petcoke. Sagar registered a net loss of Rs72mn as the commissioning of capacities led to higher depreciation and interest costs. It has guided for flat power and fuel cost/ton QoQ in Q2, and benefits of the recent correction in coal/petcoke prices should be witnessed from mid-Q3FY23. Factoring in higher opex/ton, we reduce our FY23 EBITDA estimates by ~4%, but keep our FY24/FY25 estimates unchanged. Its gross debt was flat QoQ at Rs. 14.9bn of which Rs. 5bn is for acquisition. FY23 capex guidance of Rs. 300mn remains unchanged."

Company profile:

Sagar Cements Limited (SCL) is one of India's leading cement manufacturers with an installed production capacity of 8.25 MTPA. They manufacture Ordinary Portland Cement (OPC) of grade 53 and 43, Portland Pozzolana Cement (PPC), Sulphate Resistant Portland Cement (SRPC), Portland Slag Cement (PSC), and Ground Granulated Blast-furnace Slag (GGBS). Capacity utilization at Jeerabad/Jajpur plants stood at 46%/sub-10% in Q1. Management stated that Jeerabad/Jajpur plants are expected to generate positive EBITDA at a capacity utilization of 50%/40%. The Jajpur plant is expected to reach 35-40% capacity utilization after the monsoon. Additionally, the board has approved a proposal to submit a resolution plan in connection with the corporate insolvency resolution process on an application filed in respect of Andhra Cements.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.