7 APRIL 2016
SECTOR: CEMENT
Sagar Cements Limited
BSE SENSEX
24900
S&P CNX
7614
(INR CRORES)
CMP: INR414 TP: INR500 (+21%)
Buy
Y/E MARCH
Net sales
EBITDA
RPAT
BV/Share (Rs.)
Adj. EPS (Rs.)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
ROE (%)
RoCE (%)
FY15A
576
73
296
299.8
13.0
89%
31.7
1.4
9.8
1.9%
6%
12%
FY16E
821
153
37
315.1
21.3
63%
18.8
1.3
7.0
1.3%
7%
17%
FY17E
990
184
60
349.5
34.4
62%
11.6
1.1
5.2
0.0%
10%
17%
KEY FINANCIALS
Shares Outstanding (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
1.7
719
108
-5%
63%
We recommend to BUY Sagar Cements for a target of INR500
- 6.25XFY17 EV/EBITDA (21% upside)
Perfectly positioned to Tap demand growth:
SCL with presence
across all key states in Southern India remains best placed to benefit
from demand revival in the region. Its plants are located at a distance
of 95 km from the new capital city of Amravathi. Additionally, the
low-cost housing and irrigation projects of Andra Pradesh and
Telangana will only be positive triggers for demand.
Input logistics savings - a cost advantage:
SCL's plant is in close
proximity to major raw material sources, coal mines and ports. The
limestone mine (proven reserve >1000 mt, or 100 years+ usage) is
within a distance of 4 km from SCL's unit at Nalgonda district of
Telangana. SCL also has coal linkages from Singareni Coal mines,
which is less than 150 km from the unit. Even the nearest port is
within a distance of 100 km from the plant, which lowers the cost of
imported coal. Moreover, commencement of the railway siding will
optimize its freight cost by reducing its dependence on road transport.
Acquisition to add scalability and improve costs:
SCL acquired
BMM Cement in August 2015 at an enterprise value of INR 5.4 bn.
The acquisition was primarily funded by proceeds of sale of the 47%
stake in Vicat Sagar Cement Private Limited in September 2014 to its
French partner Vicat Group for INR 4.35 bn. BMM has a 0.95 mtpa
cement plant and a 25MW power plant at Anantpur district, Andhra
Pradesh. The power plant has a PPA for 15 MW sale wtih AP Genco
at INR 5.40/unit. BMM has been granted a 20 year limestone mining
lease over an area of 1,123 acres, 2 kms from the plant.
The BMM unit is strategically located near the Karnataka border and
primarily operates in the markets of Tamil Nadu, Karnataka and Andhra
Pradesh. The unit will take up Sagar's sales in Karnataka and Tamil
Nadu, causing lead distances to Karnataka/Tamil Nadu to come off
from ~640 km/ 770 km to 375 km/520 km (from BMM's Anantpur
plant) leading to to reduction in freight cost.
Valuations & View:
We expect Sagar's realisation to grow by 2% in
FY17, with BMM's full-year production coming online leading to a
consolidated volume growth of about 15% in FY17. We expect SCL
to trade at 6.25XFY17 EV/EBITDA, factoring a discount of 45% to
our target EV/EBITDA for The Ramco Cements(11X). The discount
is in proportion to the FY17 EBITDA/Ton of SCL's of Rs.836 Vs
Ramco Cements' of Rs.1,485. Thus, we initiate coverage on Sagar
Cements with a target price of Rs.500, offering an upside of 21%.
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of December 2015)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs lakh)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
490/270
57.0
8.4
34.6
5391
22.47
-2/6/50
-4/4/40
Maximum Buy Price :INR 430
Ravi Shenoy
(ravi.shenoy@MotilalOswal.com); Tel: +91 22 30896865
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sagar Cements Limited
CONCERNS
Slow demand growth\ price correction:
Delay in recovery of cement demand in south may result into
volume growth for SCL more gradual in nature. According to our channel checks, the southern market has
witnessed price corrections of as much as Rs.25/bag in March on a MoM basis in Andhra Pradesh market.
Any change in the same will cause us to revise our estimates.
Cost inflation:
Significant increase in key input cost like the prices of raw materials (limestone, slag, iron ore
etc) and energy cost beyond a certain point can have a direct impact on the company's profitability.
Promoter share's pledged:
About 30% of the company's share capital (53% of the promoters' stake) is
pledged with financial institutions for BMM's restructured loans.
BACKGROUND
Sagar Cement (SCL) is a south based cement company having production capacity of 2.75 mn tonne (mt) in
Nalgonda District, Telengana. It has acquired BMM Cements, which has capacity of 0.95 mt and captive
power plant of 25 MW. The Company manufactures and markets cement under the brand name "Sagar"
INRCr
Revenue
Expenditure
EBITDA
Other Income
Interest
Depreciation
Profit before tax
Tax
RPAT
EBIDTA (%)
Tax rate (%)
QE Dec-14
123.6
118.6
5.0
5.9
4.7
5.6
0.7
0.4
0.3
4%
63%
QE Sep-15
181.2
163.3
17.9
5.2
6.4
4.0
12.7
4.0
8.7
10%
31%
QE Dec-15
124.5
109.7
14.8
8.1
10.6
6.2
6.0
2.0
4.0
12%
33%
% y/y
1%
-7%
193%
36%
125%
12%
779%
358%
1503%
% q/q
-31%
-33%
-17%
54%
66%
54%
-53%
-50%
-54%
Quarterly Performance
Revenues were flat in 3QFY16 due to stagnant volumes and realisations for cement in the south. However,
the company benefited from lower commodity prices, which lowered power and fuel costs and transportation
costs by 17% and 18% respectively. This caused EBITDA to nearly triple in 3QFY16 YoY.
7 April 2016
2

Sagar Cements Limited
IVRCL: Financials and Valuation
Sagar Cements Limited. Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
(INRCR)
FY15 FY16E FY17E
RATIOS
Y/E MARCH
FY15 FY16E FY17E
Net sales
Growth (%)
Other Income
Total Income
Staff Costs
Raw material cost
Other Expenses
Total Expenditure
EBITDA
% of net Sales
Depreciation/Amortization
Finance Charges
Extra-ordinary income
PBT
- TAX
PAT
APAT
Growth (%)
PAT MARGIN
BALANCE SHEET
Y/E MARCH
489
576
-
18
18
17
507
593
25
33
54
57
409
428
488
519
19
73
4% 13%
27
22
30
23
0
349
-37
378
-12
81
-26
296
-26
23
- 189%
-5
50
821
43
4
825
55
102
515
672
153
19%
49
52
0
53
16
37
37
63%
4
990
21
5
995
59
114
638
811
184
19%
50
49
0
85
26
60
60
62%
6
(INRCR)
Adj. EPS
Growth (%)
Cash EPS
Book Value
Payout
DPS
P/E
Cash P/E
Price/Book Value
EV/EBITDA
EV/Tonne
Div. Yld
RoE
RoCE
Debt/Equity (x)
13.0 21.3 34.4
89% 63% 62%
25.39 49.15 63.17
299.82 315.08 349.50
4% 24%
0%
7.50
5.00
0.00
31.7
16.3
1.4
10.1
41.0
2%
6%
12%
0.42
19.4
8.4
1.3
7.1
44.7
1%
7%
17%
0.82
12.0
6.5
1.2
5.3
37.2
0%
10%
17%
0.71
CASH FLOW
(INRCR)
FY15 FY16E FY17E
FY14
FY15 FY16E FY17E
Y/E MARCH
Equity Share Capital
Reserves
Shareholders' Funds
Debt
Net deferred tax
Source of Funds
Gross Block
Less : Accum. Depreciation
Net Block
Capital WIP
Investments
Current Assets
Inventories
Sundry Debtors
Cash and Bank Balances
Loans and Advances
Other Current Assets
Current Liabilities & Provisions
Net current assets
Application of Funds
17
223
240
205
32
478
535
199
335
40
86
138
42
48
5
65
-22
121
17
478
17
504
521
17
531
548
17
590
608
221 451 431
48
51
55
790 1049 1094
555 1207 1207
221 270 320
333 937 887
112
0
0
0
0
0
467 250 374
62
89 107
58
83 100
196
78 167
164
0
0
-13
0
0
123 138 167
344 112 207
790 1049 1094
PBT before EO items
Add : Depreciation
Interest
(Inc)/Dec in WC
Others
CF from Operations
(Inc)/Dec in Fixed assets
Others
CF from Investing act.
Inc/(Dec) in debt
Dividend paid
Less: Interest paid
CF from Financing act.
Inc/(Dec) in cash
Add: Beginning balance
Closing Balance
29
22
23
-136
-66
-128
53
49
52
115
-13
255
85
50
49
-7
-21
157
0
0
0
-20
0
-48
-68
89
78
167
343 -540
0
0
343 -540
16
-15
-23
-22
192
5
196
230
-10
-52
168
-117
196
78
7 April 2016
3

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