Sagar Cement Q3FY12 Earnings Review

Sagar Cements, one of the small cement manufacturing companies based out of Andhra Pradesh, announced its Q3FY12 results on January 30, 2012. The net sales of the company have gone up by 43.5 per cent on a YoY basis to Rs 161 crore. The net profit has gone up by a whopping 469 per cent to Rs 17.66 crore as compared to that of the same period last year. This was largely on account of higher realisation and sales volumes due to a lower base effect in the same period last year.

The realisation during the quarter has gone up by 21 per cent on a YoY basis to Rs 4,618.56 per tonne while the sales volume has gone up by 28 per cent on a yearly basis. The cement prices post monsoon have remained firm on the back of production cuts carried out by the major cement producers to offset the high input costs such as those of coal and freight charges. The capacity utilisation of the company during the quarter stood at 60 per cent.

Moreover, despite an increase in the raw material (up by 90 per cent YoY) and power/fuel (up by 111 per cent YoY) costs, the company has reported a decent jump in its margins. The EBITDA margin of the company improved by 600 bps to 18.87 per cent while the net profit margin improved by 700 bps to 10.24 per cent. The significant in the margins was also on account of the stock adjustment (clearance during the quarter).

The average fuel cost per tonne of clinker during the year was Rs 1,032 as compared to Rs 674 per tonne in the previous corresponding quarter. This increase was mainly because a large portion of the coal used this quarter was imported from South Africa and Indonesia.

The total freight per tonne of cement for the quarter stood at Rs 630 as compared to Rs 450 in the previous corresponding quarter, an increase of 40 per cent. Although the prices of petrol and diesel were fairly stable this quarter, dispatches outside AP stood at around 48 per cent this quarter, thus leading to an increase in the freight cost.

The company continues to have its presence in the markets of Orissa, Karnataka, Tamil Nadu and Maharashtra as well as Andhra Pradesh. In Q3FY12 approximately 48 per cent of cement dispatches were to various markets outside the home state.

We believe that the company has posted robust Q3 numbers, particularly with regard to the bottomline of the result which was above our expectations. And going forward we expect it to post decent numbers in Q4FY12 mainly on account of the further pick-up in demand from the infrastructure and construction activity which also cyclically remains the best quarter for the cement sector. However, after a change in the pricing method by Coal India Ltd from useful heat value (UHV) to gross califoric value (GCV), the prices of coal will shoot up further and this will impact the margins of the cement companies in the ongoing quarter.