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Multi Baggers

Ventura Securities

5.30 AM Jan 1st 1970

Sagar Cement

BSE ID : 502090     NSE ID : SAGCEM

RECOMMENDED PRICE 912.75

PEAK FROM RECO 319.00 -65.05%

CURRENT PRICE 214.05 Resource id #18

We are pretty enthused by Sagar Cement Ltd`s (SCL) astute understanding of the cement cycle, meticulous and careful selection of acquisition targets and its relentless focus on cost efficiencies. We upgrade our price target on the stock to Rs 1,715 (11x FY20 EV/EBITDA) as we introduce estimates for FY20.

We are pretty enthused by Sagar Cement Ltd`s (SCL) astute understanding of the cement cycle, meticulous and careful selection of acquisition targets and its relentless focus on cost efficiencies. SCL is our favorite way to play the cement growth story in south India. We upgrade our price target on the stock to Rs 1,715 (11x FY20 EV/EBITDA) as we introduce estimates for FY20. Our revised price target implies a potential upside of 88.9% from the CMP of Rs 908 over the next 24 months.

Our optimism is bolstered by the following:

* Strong revenue growth on the cards

Sales volumes to grow at a healthy CAGR of 18.7% to 3.68 MT by FY20. Pricing trends have remained resilient despite capacity overhang. We build in 8.9% CAGR growth in average realizations. On the back drop of the above net revenues are expected to grow to Rs 1,775 crores.

* SCL, has a diversified geographical sales mix.

In Q2 FY18, the company sold 54% of its volumes in AP and Telangana, TN (15%), Maharashtra (11%), Karnataka (14%), Orissa (4%) and other states (1%). Going forward it plans to increase its sales in the markets of Orissa due to additional capacity of SCL coming up in Vizag.

Andhra Pradesh and Telangana is responsible for over 54% of SCL’s overall sales. Strong demand trends in AP and Telangana to witness 12- 15% and 10% demand growth in FY18E and FY19E, respectively. Development of commercial and government infrastructure in the capital Amarawati is expected to fuel this demand. States with muted growth in past such as Tamil Nadu and Karnataka are expected to witness revival in
demand given there has been good rainfall recently. The management anticipates 5% demand de-growth in Tamil Nadu in FY18E and a marginal
increase in FY19E. However, the demand in Karnataka is expected to grow by 5% and 10% in FY18E and FY19E, respectively.

SCL believes, the low cost housing and big ticket irrigation projects may contribute in 2nd half of FY18 in a small fashion. However, they are expected to contribute meaningfully from the next year onwards.

* Strategic capacity expansions and cost savings to help lower freight costs and boost EBITDA/tonne.

SCL has got three manufacturing facilities, one each at Vizag, Mattampaly and Ananthapur and its capacity is set to scale to 6 MT p.a by FY20.

With its strong revenue growth and continuing strong performance in costs, we expect EBITDA to grow at a CAGR of 43.0% from Rs 109 crores in FY17 to Rs 318.8 crores in FY20. Further, we anticipate PAT to grow from a loss of Rs 4.1 crores in FY17 to Rs 157.6 crores in FY20.

Given the improved visibility on revenue growth, profitability and future expansion plans, we believe the stock is due for a re-rating. We have revised our target estimates to Rs 1,715 (11x FY20 EV/EBITDA) representing a potential upside of 88.9% from the CMP of Rs 908 over the next 24 months.

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 a member of BSE and NSE. 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 Guaranty Limited is the holding Company of VSL; Ventura Commodities Limited and Ventura Allied Services Private Limited are subsidiaries of VSL. 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