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Multi Baggers

Ventura Securities

12.00 AM Jul 4th 2016

Sagar Cement

BSE ID : 502090     NSE ID : SAGCEM

RECOMMENDED PRICE 680.95

PEAK FROM RECO 211.00 -69.01%

CURRENT PRICE 820.00 20.42%

Sagar Cements is a cement manufacturer with a dominant presence in South India. We initiate coverage on Sagar Cements as a BUY with a Price Objective of Rs 941, representing a potential upside of 38% over a period of 18 months.

Sagar Cements

Sagar Cements Ltd. (Sagar) is a cement manufacturer with a dominant presence in South India. We believe that the cement industry is on an up-turn and expect Sagar to be a key beneficiary.

We are positive on the company given that:

i) The cement industry is on the verge of a turn-around: South India (which accounts for ~ 70% of Sagar’s revenues) has witnessed a five year lull in cement demand owing to surplus capacities, subdued demand and political unrest over the creation of a separate state, Telangana. However, with the political resolution of Telangana, limited planned capacity additions in the area and an anticipated pick-up in construction and irrigation projects, cement demand in the South is expected to see a revival going forward. We expect key markets of AP, Karnataka and TN to clock 8% CAGR during FY18-19.

ii) Sagar has recently completed the acquisition of BMM cements which has a grinding capacity 1 mtpa for Rs 540 crores. It has also received the approval to acquire a 0.2 mtpa grinding unit of Toshali Industries for Rs 60 crores. Post these acquisitions, the grinding capacity of the company will increase to ~4.3 mtpa from 2.75 mtpa. Inorganic growth at the start of the potential cement up-cycle will help the company fully capitalize on the demand potential. Accordingly, we expect revenues to grow at a 3 year CAGR of 16% to Rs 1178 crore by FY19.

iii) Freight cost as a % of total revenues is expected to decline from 16% in FY16 to ~13% in FY19 owing to: a) BMM Cements is strategically located such that it can service the Southern markets, while Sagar’s standalone plant can focus on supplies to Maharashtra and Orissa. This arrangement has the potential to reduce the lead distance by ~20% and b) Commencement of the railway siding unit is expected to help the company save ~ Rs 12 crore annually.

iv) Power cost is expected to decline given that: a) BMM has a 25 MW captive power plant with a surplus of 15 MW which is sold to AP Genco b) Coal prices are declining due to increasing emphasis on cleaner fuels.

v) With the uptick in demand coupled with lower freight and power costs, we expect Sagar’s EBITDA margin to expand from 16.5% in FY16 to 19.5% by FY19.

We initiate coverage on Sagar as a BUY with a Price Objective of Rs 941, representing a potential upside of 38% over a period of 18 months. We have arrived at our target price by assigning an EV/EBITDA multiple of 8x to FY19E EBITDA of Rs 230 crores.

For full details, Click on the attachment.

Disclosures and Disclaimer Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. RA involved in the preparation of this research report discloses that he / she has not served as an officer, director or employee of the subject company. RA involved in the preparation of this research report and VSL discloses that they have not been engaged in the market making activity for the subject company. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of VSL. This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients / prospective clients of VSL. VSL will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of clients / prospective clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. And such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 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This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the public media without the express written consent of VSL. This report or any portion hereof may not be printed, sold or distributed without the written consent of VSL. This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. This document is strictly confidential and is being furnished to you solely for your information, may not be distributed to the press or other media and may not be reproduced or redistributed to any other person. The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of VSL and are given as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events will be consistent with any such opinions, estimate or projection. This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections contained herein are entirely those of the authors. 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SagarCements_VenturaSec_PYT.pdf

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