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Anand Rathi
Sagar Cements (Buy)
CMP: ₹689.9
Target: ₹817
Sagar Cements is setting up an integrated 1 mtpa cement plant and a 7-MW WHR system at Dhar, Madhya Pradesh. It will acquire a cement plant of Satguru Cement Pvt Ltd by way of majority (65 per cent) shareholding for ₹150 crore. Reinvigorating the plant will cost ₹425 crore. Also, for the eastern markets it is setting up a 1.5 mtpa grinding unit at Jajpur (Odisha) at ₹308 crore, after acquiring a 100 per cent stake in Jajpur Cements for ₹108 crore. This will take its cement capacity to about 8.25 mtpa (now 5.75m). These projects are scheduled to be completed by March 31, 2021. This expansion is in line with the company’s strategy of doubling capacity every 10 years.
Outlook: With the expansions expected on be on track, we expect the company to have over 8.25 mtpa cement capacity by FY21. With better costing and with pricing power, we expect an improved performance from Q3 FY19. Further, the commissioning of its 18-MW plant and 7-MW WHR system would take its combined power capacity to 68.35 MW (now 43.35 MW) and will add to savings in power & fuel costs.
Valuation: We expect strong volumes in H2 FY19 supported by expected mounting volumes in southern states, especially Andhra Pradesh and Telangana. .
Risks: Rising pet coke and diesel prices.
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