Aug 1, 2016 - Stock performance (%). 1m ... The current market price offers substantial ..... It is for the general info
Quarterly Result Update Sagar Cements Ltd. South markets continue to remain subdued Sagar Cements reported disappointing results for Q1FY17. Standalone revenues fell 26% YoY to Rs 136 crore on account of subdued pricing in the backdrop of weak demand scenario. Sagar Cements (standalone) reported volumes of 0.43 mn tones, a drop of 9% YoY. Average realisations fell from Rs 5259/tone to Rs 4394/tone. Capacity utilization levels dropped from 65% in Q1FY16 to 57% in Q1FY16. Clearly, these numbers indicate that demand in the Southern markets continue to be subdued. Sagar’s key markets -- Telangana, North Karnataka and North Coastal districts of Andhra Pradesh witnessed are the regions which witnessed maximum price correction. According to the management, while spending on rural roads and Mission Kakatia (restoration of tanks and lakes in Telangana) are the programs which have gained traction, the big ticket irrigation projects and affordable housing schemes are yet to take off. The decline in topline coupled with stable operating costs resulted in sharp decline in EBITDA margin – from 20.8% in FY16 to 9.6% in FY17. EBITDA/tone stood at Rs 306 in Q1FY17 as compared to Rs 821 in Q1FY16. Sagar has reported standalone PAT of Rs 4.6 crores, down 80% YoY. On a consolidated basis, Sagar reported revenues of Rs 197 crores and volumes of 0.57 mn tones. EBITDA margins were lifted to 13.2% as BMM reported EBITDA margins of 21.3% as the markets in which BMM operated did not witness as much price correction as in the markets serviced by Sagar’s Matampally plant. On a consolidated basis, Sagar reported PAT loss of Rs 25 lakhs on account of higher depreciation and finance expenses post consolidation of BMM. While the Q1FY17 numbers are disappointing on the margin front, we maintain our estimates: i) According to the management, realisations have seen an uptrend from the second half of May onwards. Also, given the steady progress of monsoons situation on the ground wrt government infrastructure projects is expected to improve in the coming quarters. ii) Power cost is expected to decline as the tariffs for the BMM plant have reduced from Rs 5.45/unit, which was aligned with the PPA that the company already has.
Recommendation (Rs) CMP Rating
628 HOLD
Index Details Sensex Nifty Industry
28,051 8,638 Cement
Scrip Details Mkt Cap (Rs cr) Eq Shares O/s (Cr) Avg Vol (Lakhs) 52 Week H/L Dividend Yield (%) Face Value (Rs)
1085 1.7 0.2 719/305 0.4 10.0
Latest shareholding pattern (%) Promoters 56.93 Public 43.07 Total 100.00
Stock performance (%) 1m 3m Sagar -6.5 15.6 Nifty 5.3 10.1 BSE - Bank 7.13 13.41
6m 51.0 14.2 23.15
While, we have reiterated in our Initiating Coverage report that we expect real demand uptick only
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Quarterly Result Update from FY18 onwards, we will closely monitor the progress of demand and realizations in the South. Further, we continue to expect that situation in the South should improve from here on as construction activity picks up in Amravati and irrigation projects of Telangana gain traction. We are positive on the prospects of Sagar Cements given: i) Synergy benefits wrt freight costs and power costs post the acquisition of BMM Cements is expected to kick in the coming quarters. ii) 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% growth during FY18-19. At the CMP of Rs 630, Sagar Cements is trading at an FY18 EV/EBITDA of 5.6x and EV/Tonne of 64$. We recommend accumulating the stock on dips. The current market price offers substantial upside potential considering that the financial performance of the company may improve substantially from FY18 onwards. The development of Amravati is expected to translate to significant cement growth for South-based players, especially Sagar, which is located within 100 kms of the to-be state capital. We retain our target price of Rs 940 for the stock.
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Quarterly Result Update Description Net Sales Other operational Income Total Oper. Income(TOI) Raw Materials Cons.% to TOI Stock adj. (-)Inc / (+)Dec% to TOI Net Raw Mat adj. for stock % to TOI Other expenses % to TOI Contribution Net_Sales Personnel % to TOI Total expenditure Operating Profit % to TOI Non-Operating Income Interest Exceptional Items Gross Profit Depreciation PBT before Extra-ord % to TOI Extraordinary Items PBT Tax Rate Prov. for Tax % to TOI Profit after Tax % to TOI Face Value Equity Share capital EPS (Rs.) CEPS (Rs.)
35
Q1FY17 135.5 0.9 136.4 18.2 13.4 8.7 6.4 26.9 19.8 87.5 64.1 22.0 9.0 6.6 123.4 13.0 9.5 8.6 6.9 0.0 14.7 6.4 8.2 6.0
Q1FY16 184.7 0.3 185.0 18.8 10.1 6.3 3.4 25.0 13.5 112.6 60.9 47.4 8.9 4.8 146.5 38.5 20.8 7.0 3.3 0.0 42.2 5.6 36.6 19.8
8.2 44.3 3.6 2.7 4.6 3.4 10.0 17.4 2.6 6.3
36.6 37.7 13.8 7.5 22.8 12.3 10.0 17.4 13.1 16.3
% Chg. -26.6 231.6 -26.3 -2.9 -39.9 -7.8 --22.4 --53.5 1.3 --15.8 -66.2 -22.4 110.9 0.0 -65.2 15.5 -77.5 --77.5 17.4 -73.6 --79.9 ----79.9 -61.2
Q1FY17 135.5 0.9 136.4 18.2 13.4 8.7 6.4 26.9 19.8 87.5 64.1 22.0 9.0 6.6 123.4 13.0 9.5 8.6 6.9 0.0 14.7 6.4 8.2 6.0
Q4FY16 152.1 1.3 153.4 14.3 9.3 -4.7 -3.1 9.6 6.3 106.0 69.1 37.7 12.0 7.8 127.6 25.8 16.8 7.9 8.6 0.0 25.1 7.5 17.6 11.5
8.2 44.3 3.6 2.7 4.6 3.4 10.0 17.4 2.6 6.3
17.6 13.4 2.4 1.5 15.2 9.9 10.0 17.4 8.8 13.1
% Chg.FY201603FY201503 -10.9 618.3 544.8 -27.8 3.5 3.3 -11.1 621.8 548.1 27.2 66.4 67.8 -10.7 12.4 LP 1.8 -10.6 -0.3 -1.9 180.0 68.2 57.2 -11.0 10.4 -17.5 420.0 397.8 -67.6 72.6 -41.7 133.6 93.1 -24.8 37.6 33.5 -6.0 6.1 -3.3 525.7 488.4 -49.6 96.0 59.7 -15.5 10.9 8.1 28.2 363.0 -20.1 29.0 23.1 0.0 0.0 0.0 -41.5 95.2 399.6 -14.3 23.4 21.5 -53.1 71.9 378.1 -11.6 69.0 0.0 -53.1 71.9 378.1 231.6 30.8 21.5 54.9 22.1 81.4 -3.6 14.9 -69.9 49.8 296.7 -8.0 54.1 -10.0 10.0 -17.4 17.4 -69.8 28.6 170.6 -51.5 42.1 183.0
% Chg. 13.5 5.6 13.4 -2.1 -LP -19.2 -5.6 -43.5 12.3 -7.6 60.9 --92.2 25.8 0.0 -76.2 8.7 -81.0 -0.0 -81.0 42.9 -72.8 --83.2 ----83.2 -77.0
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Monday, 1 August, 2016
Quarterly Result Update
Capacity Utilisation Trend
Geography wise sales trend % 100 6
80%
90
70%
80
60% 50% 40%
70
12
60
11
5 23
9
9
22
20
16
21
20
22
15
13
33
36
15
18
7
7
10
19 21 13
50
30%
30
10%
18
53
20
in mn tonnes
Karantaka
Tamil Nadu
Maharashtra
Revenues and Revenue Source: Federal Bank, Ventura Research 6000
20
21
12 6
10 4
45
52
55
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 AP & T
Rs/tonne
8
0
Capacity Utilization
andResearch Realisation Source: FederalVolumes Bank, Ventura
29
10
Q1FY17
Q4FY16
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
0%
37
36
8
7
16
15
40
20%
0.60
17
250.00
Orrisa
Others
growth
in Rs crs
60% 50%
0.50
5000
0.40
4000
200.00
40% 30%
150.00 0.30
20% 10%
3000
100.00 0.20
2000
0.10
1000
0.00
0
0% -10%
50.00
-20% -30%
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Volumes
Realisation (RHS)
0.00
-40% Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Revenue
Revenue Growth (YOY) s
Source: Sagar Cements, Ventura Research
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Source: Sagar Cements, Ventura Research
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Monday, 1 August, 2016
Quarterly Result Update EBITDA and EBITDA per tonne
EBITDA and PAT margin
in Rs crs
45.00
Rs per tonne
250
1,000
40.00
900
35.00
800
200 150
700
30.00
600
25.00
100
500 20.00
400
15.00
50
300
10.00
200
5.00
100
0.00
0
0
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 -50
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 EBITDA margin
EBITDA per tonne
Source: Sagar cements, Ventura Research
Source: Sagar Cements, Ventura Research
200
200
100
0
0
8.5X
10X
11.5X
Jan-16
Jul-15
Sep-15
7X
13X
CMP
1X
1.2X
1.4X
1.6X
Jun-16
400
Jun-15
300
Jun-12
600
Jun-10
400
Mar-16
800
Feb-16
500
Dec-15
1000
Nov-15
600
Oct-15
1200
Aug-15
700
Jun-15
1400
May-15
1600
Jun-14
1 Yr Forward P/BV 800
Jun-11
1 Yr Forward EV/EBITDA multiple
EV
PAT margin
es
Jun-13
EBITDA
1.8X
es v
Source: Sagar Cements, Ventura Research
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Source: Sagar Cements, Ventura Research
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Quarterly Result Update 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. 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