Sagar cement hosted a conference call on July 21,2022. In the conference call the company was represented by Mr Sreekanth Reddy-Jt Managing Director, Mr K Prasad-Chief finance officer and Mr Rajesh Singh-Chief marketing officer.

Key Highlights of the call

Demand for cement remained muted in Q1FY2023 in a challenging environment, inflationary pressure of inputs, labor availability and early monsoon.

The industry was able to take price hikes but due to subdued demand environment, it was not able to take the required price hikes.

Revenues of the company stood at Rs 558 cr for the quarter when compared to Rs 393 cr largely driven by volumes.

EBITDA for the quarter stood at Rs 61 cr compared to 107 cr of the corresponding quarter of the previous year down 43% YoY.

Operating margins stood at 11% in the quarter against 27% in the corresponding quarter of the previous year. Higher input cost led to margin compression. Also, raw material price remained stubborn.

Average fuel cost stood at Rs 1827/ ton in Q1FY2023 as against Rs 1017/ton in Q1FY2022. Elevated domestic coal and pet coke prices led to higher fuel cost.

Freight cost stood at Rs 798/ton in Q1FY2023 as against Rs 764/ton in Q1FY2022. Increase is not only due to higher diesel prices but due to other inflationary pressure which is related to transportation. However, the lead distance has reduced to 268 kms in Q1FY2023.

Fuel Mix: Of the total fuel 70% was domestic coal and 30% pet coke in Q1FY2023.

Capacity utilization stood at 57% in Q1FY2023.

Pricing: Realization increased by 5% QoQ in Q1FY2023 and has remained stable. Even in current quarter pricing is expected to remain stable.

Since exit of June, the company has increased Rs 5-10 per bag in Bangalore, Chennai price is more or less stable, Pune prices are flat, in Bhubaneshwar prices are down by Rs 10, in Telangana it is flat and has increased by Rs 5 in Hyderabad and Vizag.

Cost: Cost is expected to remain at same levels in current quarter (Q2FY2023).

Trade sales: Trade sales contribution stood at 65% of total sales. Product and market mix remained more or less same for the company.

Blended cement contribution stood at 50% of the total sales and the company targets 60% of the total volumes from blended cement.

Debt: Gross debt for the company as on June 30,2022 stood at Rs 1490 cr of which Rs 1293 cr was long term and the balance was working capital loans.

Net Debt stood at Rs 1208 cr which includes Rs 500 cr raised for the purpose of acquisition of Andhra Cement.

Net worth of the company stood at Rs 1639 cr and long-term Debt: Equity as on June 30,2022 stood at 0.79:1.

If the company completes acquisition of Andhra cement in FY2023, the company will have 10 MT capacity in FY2023 and the debt levels might increase by another Rs 100 cr to Rs 1500 cr.

Acquisition of Andhra Cement: The board has approved the participation on resolution process of Andhra Cement.

Timeline for submission for resolution plan is August 18 as per resolution officers, the resolution process is expected to be completed by September. It will take another 3 months for maintenance activity at plants of Andhra Cement.

Andhra cement has a total grinding capacity of 2.6 MT and clinker capacity of 1.65 MT.

Inventory: At 100% capacity utilization coal will last for 2 months and pet coke will last for 45 days.

Inventory cost of fuel stood at Rs 2 per 100 kilo cal.

Capex: The company plans to incur CAPEX of Rs 30 cr for FY2023.

Outlook:

In the short term, the company expects mid -to low single digit growth where as long term looks promising for growth for the industry.

In Southern region, currently the supply is more than demand but 5-10 years down the line, the company expects the gap to further reduce.

The company expects volumes of 5MT for FY2023 of which 3.6-3.7 is from existing plants and the balance of 1.3-1.4 from new assets. The incremental volumes are expected from new capacities.

Jeerabad will be EBITDA positive at 50% capacity utilization and Jajpur will be EBITDA positive at 40% capacity utilization. However, realization will also matter.

Management Commentary:

Commenting on the performance Mr Sreekanth Reddy, Jt managing Director of the company said: “We have expectedly had a soft start to the fiscal given the challenges surrounding inflationary environment. Volumes growth is high at 35% consequent to the commencement of our operations at Jajpur and Jeerabad. However overall realizations remained steady amidst a benign demand scenario. Besides elevated input prices, challenges surrounding heat wave and labour availability weighed in on demand. Higher volume growth was in part owing to the commissioning of new facilities and also owing to low base effect.

Operational profitability and margins for the quarter remained under pressure owing to higher input prices. We have seen a material surge across commodity prices over the past few months, resulting in a significant increase in the cost of manufacturing and distribution. While we did undertake some price revisions, benign demand environment restricted our ability to implement requisite price hikes leading to lower profitability during the quarter. Input prices though have started to cool off from their recent highs and we are hopeful that the trend will continue which should aid our profitability going forward.

Going ahead, we believe our diversified geographic presence, improved product mix, cost rationalization measures and plans towards scaling up the business inorganically, positions us well to deliver consistent performance and create value for our shareholders.”