Sagar Cement Ltd - Rs.119.00

Established in the early Eighties as a mini-cement plant Sagar Cement Ltd. (SCL) has emerged as a leading player in producing SRC, IRS-40 special grade slag cement and OPC marketed as ‘Sagar Priya’ and has one of the highest margins in the industry mainly on account of low power and freight costs. It sources almost 2/3rd of its power requirement from its subsidiary company Sagar Power Ltd, which has two mini hydel power units with total capacity of 8.5 MW. Its power consumption at 80 units/tonne of clinker is one of the lowest compared to the industry norm of 90-95 units/tonne.

SCL has a clinker capacity of 5,50,000 TPA and grinding capacity of 3,00,000 TPA at Mattampally in Nalgonda District of Andhra Pradesh (AP). It has adopted the time tested dry process rotary kiln technology for manufacture of clinker and with constant upgradation with latest technologies like O-Sepa separator for its cement mill, Rotary packing systems, I KN Kids Cooler for cooling section and a six stage pre-heating system, it has the most modern plant among mini cement plants in AP. In FY05, it sold off its loss-making Bayyavaram unit with a grinding capacity of over 1,00,000 TPA. However, Amreshwari Cements Ltd, an associate company with 4,00,000 TPA grinding capacity does grinding for it. SCL also has a low transportation cost per tonne of cement sold because it sells majority of its cement within a radius of 200 kms from its plant compared to the industry standard of 400-500 kms. On the input side, it has captive limestone reserves within 30 kms and sources coal from the Singareni collieries which are 150 kms away.

SCL has planned massive expansion with a capex of Rs.300 cr. to be funded in the debt/equity ratio of 2:1 to set up a second line kiln of 4500 TPD capacity and thereby increase its clinker production by 4 times to 20,00,000 TPA. It would also increase its cement capacity by 6 times to 20,00,000 TPD by installing two new grinding units (line 3&4) of 140 TPH each. To part-finance its expansion the company has already allotted 18.50 lakh warrants to promoters to be converted at Rs.82 per share and may further raise capital through private placement as and when required raise around Rs.200 cr. through debt. With the new capacities set to be operational by late 2008, SCL also plans to export cement. With a spectacular performance in H1FY07, it can end FY07 with sales of Rs.125 cr. and net profit of Rs.28.50 cr. This will work out to an EPS of Rs.22 on its diluted equity of Rs.13 cr. Although further equity dilution is expected going forward, investors should accumulate this stock on declines with a price target of Rs.180 (50% return) in 12-15 months.