Sagar cement hosted a conference call on Oct 20,2022. In the conference call the company was represented by MrSreekanth Reddy-Jt Managing Director, Mr K Prasad-Chief finance officer and Mr Rajesh Singh-Chief marketing officer.

Key Highlights of the call

Overall external environment remained challenging for the industry as a whole and for the company. Demand was impacted due to monsoon; however the company did witness some revival in the demand at the end of the quarter from infrastructure activities and low cost housing segment.

Pricing remained relatively steady in the key markets. The company took some price hikes to offset the cost inflation.

Going forward the company is expecting some softness in key raw materials and expects realization to improve going forward.

Revenues of the company stood at Rs 475 cr for the quarter when compared to Rs 369 cr largely driven by volumes. Volume growth was also on account of commissioning of new capacities.

The company has done volumes of 1.04 MT of which 50% was derived from Andhra and Telangana, 16% from Tamil Nadu, 9% from Karnataka, 6% from Maharashtra, 7% each from Madhya Pradesh and Orissa and the balance from other markets.

In H1, the company has done volumes of 70000 from Orissa and 190000 from Madhya Pradesh. In Q2 the company has done volumes of 35000 from Orissa and 77000 from Madhya Pradesh.

EBITDA for the quarter stood at Rs5.7cr compared to 60.8 crof the corresponding quarter of the previous year down 91% YoY.

Operating margins stood at 1% in the quarter against 16% in the corresponding quarter of the previous year down 1500 bps. Raw material prices were fairly stubborn and were impacted due to geopolitical tension between Russia and Ukraine.

Power and fuel cost for the quarter stood at Rs 2066/ton when compared to Rs 1263 /ton of the corresponding previous quarter due to high coal and pet coke prices.

Fuel Mix: The company's fuel mix was 70% coal and the balance pet coke. Domestic coal was 30%.

The company expects reduction in power and fuel prices by Rs 250/ton in Q3 itself. The company has fuel inventory which will last for Q3.

The company has received one shipment of imported pet coke 20 days back at a price of US$169. The current spot price is at US $ 195. The company is getting back to use domestic pet coke.

Freight cost for the quarter stood at Rs 797/ton when compared to 795/ton of the corresponding previous quarter.

Lead distance for the quarter stood at 271 kms. The company wants to keep the lead distance at around 270 kms going forward which will lead to reduction in freight cost.

The company reported loss after tax of Rs 49.2cr in the quarter when compared to PAT of Rs19.9cr in Q2FY2022.

Utilization: Utilization at Mattampally stood at 51%, Gudipadu at 93%, Bayyavaram at 64% and Jajpur at 30%. The consolidated utilization stood at 49% and plans to increase the same to 60-65% levels.

Gross Debt: As on Sep 30,2022 gross debt stood at Rs 1486 cr of which Rs 1275 cr is long term debt and the balance is working capital debt.

Networth of the company stood at Rs 1581 cr with Debt equity ratio of 0.81:1.

Cash balance stood at Rs 308 cr as on Sep 30,2022.

Trade sale: Trade sale for the quarter stood at 51% and the balance was non trade. The company wants to get back to trade non trade ratio of 65:35.

Pricing: Since exit of September, the company has witnessed increase in prices by Rs 15-20 /per bag in all its key markets except Indore. The company expects the prices to improve further.

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

The company expects the process of NCLT with respect to Andhra Cement to be completed in Q3.

The company will fund the acquisition if it goes through Debt to the tune of Rs 500 cr, Rs 350 cr equity which the company has raised through Premji Investment and the balance through internal accruals.

Blended cement: The blended cement ratio stood at 50% while the balance was OPC during the quarter. The company plans to increase the blended ratio to 70%.

Market Share: The company is doing volumes of 5 MT ton of the total 425 MT capacity at all India levels which is around 0.9-1% of the market share.

Outlook: Rising raw material prices may pose a challenge for profitable growth in the short term.

Guidance: The company had earlier guided volume of 5 MT for FY2023. The company has done volumes of 2.22 MT in H1FY20233 and expects to do volume of 4.75 MT at least.

However, the company expects the EBITDA to be lot lower when compared to Rs 400 cr guided earlier.

The South India volumes in FY2019 was 81 MT and the company expects that demand will improve in South India due to elections coming in FY2024 and expects to touch 81 MT run rate at least by first half of next year which will lead to improvement in capacity utilization.

Management Commentary:

Commenting on the performance, Mr.Sreekanth Reddy, Jt. Managing Director of the Company said,“Our performance for the quarter was expectedly benign given the seasonality and challenging external environment. While volumes and realisations were relatively stable, profitability and margins were impacted by higher input costs. Demand for large part of the quarter was impacted by strong monsoons. However we did witness some revival towards the end following pick up in infrastructure activities as the rains subsided. Segments such as low-cost housing and infrastructure have been well supported by the Government. Higher volume growth during the quarter is also partly on account of commissioning of new facilities. With regard to realisations, prices in the trade segment have been relatively stable compared to non-trade segment.

Despite higher volumes, we have seen compression of profitability and margins largely owing to higher input prices. Furthermore, despite elevated raw material prices, soft demand trends across markets restricted our ability to undertake price revision, in turn squeezing our margins. Also, negative operating leverage amidst lower utilization levels across units dented profitability further. However, we have started witnessing some moderation in input prices in recent times and with demand likely to pick up in the second half of the fiscal we expect some improvement in profitability going forward.

Another noteworthy development has been that the Bayyavaram Unit was Awarded with “National Energy Conservation Award, Cement Sector -2022”, in appreciation of the achievements in energy conversation in the cement sector for the year 2022 by Government of India, Ministry of Power. Furthermore, we are also pleased to announce that we had received “Certificate of Appreciation” from Commercial Taxes Department, Government of Telangana for being tax compliant and contributing the highest revenue towards realising the dream of BangaruTelangana.

Going ahead, our diversified geographic presence, cost rationalization measures, better product mix and strong balance sheet positions us well to deliver consistent performance and create value for our shareholders.”