SAGAR CEMENT LTD.

Q3 FY 2009 Update HOLD

RESEARCH Sector Cement I CMP Rs 129

Sagar Cement Ltd's (Sagar) net sales grew 31% YoY to Rs799mn in
31 January 2009 Q3FY09 as despatches rose 24% on account of stabilization of the
new units, and realisations improved 19%. Spurt in other expenses
Milind Raginwar
(+197%) & energy cost (+170%) led to OPM decline by 362bps to
milind.raginwar@pinc.co.in
22.4%. With a rise in capital charges, Sagar reported a NP of Rs54mn
Tel: +91-22-6618 6395
(Rs89mn).
Spurt in volume assists rise in sales
Higher direct cement despatches to 84k mt (vs 74k in Q3FY08) following
the partial commissioning of the grinding unit in Dec08 helped sales to
increase in Q3FY09. Clinker sale (Sagar has a tolling arrangement with
Amreshwari unit due to limited grinding facility before expansion)
rose to 36% to 92k mt. Sagar tapped Southern Maharashtra markets
STOCK DATA (Satara-Kolhapur belt) with trial runs of 10K mt sales in Q3FY09.
! Higher operating cost dents OPM
Market Cap Rs.1.83bn
Book Value per share Rs.78 Firm energy prices (Rs3.1k/mt v/s Rs2.7k/mt in Q3FY08) and rise in
Eq Shares O/S (F.V. Rs.10) 13.4mn other expenses (including freight & packaging expense) led to an
Median Vol (12 mths) 6,008 (BSE+NSE) upsurge in operating costs. Sagar uses a mix of imported (35%) and
52 Week High/Low Rs443/85 domestic coal (65%). The stabilisation and alignment of new facilities
Bloomberg Code SGC IN led to a overall spike in the operating cost in Q3FY09. As a result, OPM
Reuters Code SGRC.BO fell to 22.4% from 26% in Q3FY08. OP/mt fell 9% to 1k/mt.
! Rising capital charges result in loss
Depreciation and interest charges spiked by Rs63.4mn (Rs10.1mn) and
STOCK PERFORMANCE (%) Rs64.1mn (Rs8.9mn) resp on account of the recently commissioned
1M 3M 12M
facility of 2mn mtpa. Consequently net profits dipped by 40%.
Absolute (3.7) 25.2 (53.8) ! New capacities commissioned
Relative (0.7) 30.1 (12.9) The new clinkerisation capacity was commissioned in Jul' 08 at Sagar’s
Mattampally plant in AP while the grinding unit was partially
commissioned in Dec08 while the unit was fully commissioned in Jan09
STOCK PRICE PERFORMANCE taking the total grinding capacity to 2.5mn mtpa.
VALUATIONS AND RECOMMENDATION
Sagar Cements BSE (Rebased) The steep rise in energy, logistics cost and other expenses due to alignment of
498
the new unit in FY09 would impact Sagar’s earnings in FY09E. Higher
386 volumes could help Sagar to boost its sales, however compression in sales
realisations in FY10E could offset the benefits of moderation in energy prices
274 thus capping OP. Rising capital charges could impact its net earnings in
162 FY10E. We have scaled down our net profit estimates in FY09E and FY10E
to Rs0.15bn and Rs0.6bn resp. At the CMP of Rs129, Sagar is trading at a
50 P/Eof 3.2x, EV/EBIDTA of 3.5x and EV/mt of USD39 it’s FY10E. We
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 maintain our ‘HOLD’ recommendation on the stock. We may review our
recommendation followingthe clarity on stabilisation of the grinding unit.

KEY FINANCIALS (STANDALONE) KEY RATIOS

Yr Ended (March) Yr Ended (March)
Rs mn
2006 2007 2008 2009E 2010E 2006 2007 2008 2009E 2010E
Net Sales 1,162 1,978 2,235 3,035 4,612 EPS (Rs) 1.9 18.3 20.1 9.7 39.8
YoY Gr. (%) 36.3 70.3 13.0 35.8 52.0 ROCE (%) 9.7 66.5 52.9 14.4 24.2
Op Profits 79 443 566 489 1,115 RONW (%) 11.9 56.2 34.6 13.1 41.4
Op. Marg. (%) 6.8 22.4 25.3 16.1 24.2 P/E (x) 67.8 7.0 6.4 13.4 3.2
Net Profits 29 277 309 146 600 EV/Sales (x) 1.0 0.6 0.6 1.2 0.7
Eq Capital 112 127 134 151 151 EV/EBIDT (x) 18.6 3.0 3.1 9.2 3.5

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 Estimate Changes
FY09 FY10
Rs mn
Previous Revised % Ch. Previous Revised % Ch.
Net Sales 4,096 3,035 (25.9) 5,718 4,612 (19.3)
Op Profit 954 489 (48.7) 1,468 1,115 (24.0)
Net Profit 506 146 (71.2) 919 600 (34.7)
EPS (Rs) 33.5 9.7 (71.2) 60.9 39.8 (34.7)

Financial Results for the quarter & nine months ended 31 December 2008 (Standalone)
Quarter Ended Nine Months Ended Year Ended
Particulars (Rs mn)
31/12/08 31/12/07 Gr % 31/12/08 31/12/07 Gr % 31/03/08

Net Sales 799 610 30.8 1,682 1,617 4.0 2,235

Total Expenditure 620 452 37.2 1,361 1,176 15.8 1,669

(Inc)/Dec in Stock (135) 4 (137) (14) (2)

Consumption of Raw Material 62 32 95.9 117 92 26.6 130

Staff Cost 19 18 6.2 62 52 20.3 71

Power & Fuel 278 103 170.3 464 276 68.2 388

Freight Cost 56 41 38.4 126 107 18.2 147

Purchase of traded cement 187 204 (8.1) 488 514 (5.2) 727

Other Expenditure 153 51 197.2 242 149 62.1 207

Operating Profit 179 159 12.6 321 441 (27.2) 566

Other Income 1 1 (17.7) 5 8 (41.6) 10

EBIDT 180 160 12.3 326 449 (27.5) 576

Interest (Net) 64 9 618.5 99 25 295.0 34

Depreciation 63 10 526.1 122 30 312.1 41

Profit Before Tax 52 141 (62.8) 52 253 (79.4) 500

Tax (1) 52 (102.4) 9 145 (93.9) 191

PAT 54 89 (39.6) 96 250 (61.6) 309

Extraordinary Items - - - - -

Net Profit 54 89 (39.6) 96 250 (61.6) 309

Paid-up Equity Cap 133 133 133 133 134

EPS for the Period (Rs.) 4.0 6.7 (39.6) 7 19 (61.6) 20.3

OPM (%) 22.4 26.0 19 27 25.3

NPM (%) 6.7 14.5 6 15 13.8

Cement & Clinker Dispat. ( MT) 177,206 142,516 24.3 356,286 391,484 (9.0) 539,643

OP/mt sold 1,008 1,113 (9.4) 853 1,161 (26.5) 953

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 Year Ended March (Figures in Rs mn)

Income Statement 2006 2007 2008 2009E 2010E

Revenues 1,162 1,978 2,235 3,035 4,612

Total Expenditure 1,083 1,536 1,669 2,545 3,496

Operating Profit 79 443 566 489 1,115

Interest & dividend income 7 9 10 10 10

EBIDT 85 452 576 499 1,125

(-) Interest 26 16 34 182 222

(-) Depreciation 30 34 41 121 166

PBT & extraordinary items 29 401 500 197 737

(-) Tax provision - 112 191 51 137

Net Profits 29 290 309 146 600

(-) Extraordinary items & Dep - 13 - - -

Net Profits after ex. Ord item 29 277 309 146 600

Fully diluted Eq. sh. O/s (mn no) 11.2 12.7 13.4 15.1 15.1

Book Value (Rs) 22 58 78 78 115

Basic EPS (Rs) 2.6 22.8 23.0 9.7 39.8

Balance Sheet 2006 2007 2008 2009E 2010E

Equity Share Capital 112 127 134 151 151

Reserves & Surplus 137 610 919 1,021 1,578

Net worth 249 737 1,053 1,172 1,729

Total Debt 199 243 2,180 2,716 2,229

Deferred Tax liability 81 85 115 115 85

Capital Employed 529 1,064 3,348 4,003 4,043

Fixed Assets excl CWIP 388 435 979 3,650 3,375

CWIP 7 331 2,059 25 80

Net current assets 107 270 282 300 530

Investments 28 28 28 28 58

Total Assets 529 1,064 3,348 4,003 4,043

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 Year Ended March (Figures in Rs mn)

Cash Flow Statement 2006 2007 2008 2009E 2010E

PBT & extra-ordinary items 28 388 500 197 737

Depreciation 30 34 41 121 166
Interest & dividend inc. - - - (10) (10)
Interest paid 26 16 34 182 222
Misc Exp W/off (2) - 5 - -
Tax paid (2) (119) (161) (51) (167)
(Inc)/Dec in working capital 112 (12) (84) (61) (113)
Cash from operations 193 307 336 377 836
Net capital expenditure (30) (405) (2,312) (758) 53
Net investments - - - - (30)
Interest recd - - 4 10 10
Cash from investing activities (30) (405) (2,308) (748) 33
Issue of eq. shares - 246 47 17 -
Change in debt (106) 68 1,900 536 (487)
Sales tax deferment (13) (13) (10) - -
Dividend paid (13) (41) (20) (43) (43)
Interest paid (26) (15) (34) (182) (222)
Cash from financing activities (158) 245 1,882 328 (752)
Inc/Dec. in cash 6 147 (91) (43) 117

Key Ratios 2006 2007 2008 2009E 2010E

OPM (%) 6.8 22.4 25.3 16.1 24.2

ROACE (%) 9.7 66.5 52.9 14.4 24.2

ROANW (%) 11.9 56.2 34.6 13.1 41.4

Sales/Total Assets (x) 2.9 2.3 0.8 1.0 1.5

Debt:Equity (x) 0.8 0.3 2.1 2.3 1.3

Current Ratio (x) 1.7 2.0 1.7 2.0 2.1

Debtors (days) 28.3 15.0 8.7 22.5 18.7

Inventory (days) 56.9 35.8 32.0 52.7 53.7

Net Working Capital (days) 41.8 10.0 (5.8) 39.4 34.7

EV/Sales (x) 1.0 0.6 0.6 1.2 0.7

EV/EBIDT (x) 18.6 3.0 3.1 9.2 3.5

P/E (x) 67.8 7.0 6.4 13.4 3.2

P/BV (x) 5.8 2.2 1.6 1.7 1.1

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 T E A M

EQUITY DESK
Gealgeo V. Alankara Head - Institutional Sales alankara@pinc.co.in 91-22-6618 6466

Sailav Kaji Head Derivatives & Strategist sailavk@pinc.co.in 91-22-6618 6344

SALES
Anil Chaurasia anil.chaurasia@pinc.co.in 91-22-6618 6483

Alok Doshi adoshi@pinc.co.in 91-22-6618 6484

Sundeep Bhat sundeepb@pinc.co.in 91-22-6618 6486

Gagan Borana gagan.borana@pinc.co.in 91-22-6618 6485

DEALING
Chandrakant Ware chandrakantw@pinc.co.in 91-22-6618 6327

Ashok Savla ashok.savla@pinc.co.in 91-22-6618 6400

Raju Bhavsar rajub@pinc.co.in 91-22-6618 6301

Manoj Parmar manojp@pinc.co.in 91-22-6618 6326

Hasmukh D. Prajapati hasmukhp@pinc.co.in 91-22-6618 6325

Pratiksha Shah pratikshas@pinc.co.in 91-22-6618 6329

DIRECTORS
Gaurang Gandhi gaurangg@pinc.co.in 91-22-6618 6400

Hemang Gandhi hemangg@pinc.co.in 91-22-6618 6400

Ketan Gandhi ketang@pinc.co.in 91-22-6618 6400

COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400

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