ICICI Bank has given a buy rating to Sagar Cement with a 12-month target price of Rs 350. Sagar Cements saw another weak quarter as volume recovery was hit by the disruption caused by the Covid-19 outbreak. Revenues for the fourth quarter FY20 declined 17 percent year on year to Rs 303.6 crore, against the brokerage estimate of Rs 295 crore as volumes for the quarter remained subdued.
Volumes were at 0.84MT, down 11.3 percent year on year against brokerage estimate of 0.83 percent. Lower profitability during the quarter is attributable to lower realizations per tonne. Some respite was seen in the form of savings in P&F costs that fell 13 percent year on year on a per tonne basis. On an absolute level, EBITDA dropped 27.7 percent year on year to Rs 44.7 crore against the brokerage estimate of Rs 40 crore. PAT shrank 94 percent year on year to Rs 1.2 crore against an I-direct estimate of Rs 5 crore owing to higher tax expenses.ICICI Bank
The management expects FY21 to be a challenging year with volumes seeing a double-digit decline, owing to utilization levels remaining sub-par. The brokerage models a 21 percent drop in volumes in FY21E and a healthy bounce-back of 39 percent in FY22E in volumes. Prices, which have remained elevated currently are also expected to taper off. Thus, the brokerage models a 4 percent drop in realizations in FY21E with a similar rise in FY22E. While private demand could be weak and recovery could be prolonged, government spending, like what has been promised by the Andhra Pradesh government could provide a cushion to falling demand. Furthermore, Sagar Cements is currently available at an FY20 EV/t of $30, implying a considerable margin of safety to the replacement cost of $100-110. The brokerage maintains a buy rating but keeps the upside limited, maintaining caution.
Financials For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 303.57 crore, up 15.82 percent from last quarter sales of Rs 262.10 crore and down -17.02 percent from last year’s same quarter sales of Rs 365.84 crore.
The company reported a net profit after tax of Rs 1.18 crore in the latest quarter. Promoter/FII Holdings Promoters held a 50.79 percent stake in the company as of March 31, 2020, while FIIs held 3.04 percent, DIIs 12.68 percent, and public & others 33.47 percent.
