Sagar Cements Limited (NSE: SAGCEM) Q3 2025 Earnings Call dated Jan. 27, 2025
Corporate Participants:
Sreekanth Reddy — Joint Managing Director
Analysts:
Manish Valecha — Analyst
Shravan Shah — Analyst
Tanish Mehta — Analyst
Jyoti Gupta — Analyst
Amit Murarka — Analyst
Garvit Goyal — Analyst
Vibha Jain — Analyst
Eshwar Arumugam — Analyst
Presentation:
Manish Valecha — Analyst
Good morning, ladies and gentlemen. Welcome you all to the 3Q FY ’25 results conference call of Sagar Cements Limited.
We have with us from the management, Mr. Sreekanth Reddy, Joint Managing Director; M.r K. Prasad, CFO; and Mr. Rajesh Singh, the Chief Marketing Officer. We will start today’s session with the opening remarks from the management and then will be followed by a Q&A session. I request all the participants to be on-mute mode during the course of the call.
Now, I would like to hand over to Mr. Sreekanth Reddy for his opening comments. Over to you, sir.
Sreekanth Reddy — Joint Managing Director
Thank you, Manish. Good morning, everyone, and welcome to Sagar Cement’s earnings call for the quarter and nine months ended, 31, 2024.
Let me begin the discussion with a brief overview of the market in terms of demand and pricing, post which I will move on to developments. Overall, the industry witnessed early signs of recovery as demand picked up after several months of lull. While the quarter started on a slow note, owing to festive season and unavailability of labor, we did experience pickup in construction activities during the second-half. Rural demand as well improved gradually aided by better agricultural output and an increase in construction activity. Realizations as well were relatively steady, which in-turn aided sales growth. Furthermore, profitability also benefited from benign input prices.
Let me now move on to our quarterly performance. As indicated earlier, Q3 in part benefited from the pickup in construction activities during the second half of the quarter. Our overall volumes for the quarter stood at 1.4 million. For the full-year FY ’25, we believe we will be able to achieve sales volume similar to FY ’24 of around 5.5 million.
Moving to the headline numbers. Our revenues for the quarter stood at INR564 crore as against INR69 crore during Q3 FY ’24, lower by almost 16%. EBITDA for the quarter stood at INR38 crore as against INR87 crore generated during Q3 FY ’24. Margins for the quarter stood at 7% as against 13% in Q3 FY ’24. EBITDA per ton stood at INR273 during the quarter. Loss after tax for the quarter stood at INR54 crores.
Going ahead with the rising utilization rate, we expect EBITDA per ton to improve on account of lower power and fuel expenses and savings in employee expenses, which will enhance our operating leverages. In the coming years, we are optimistic that our efforts to optimize freight costs such as minimizing the lead distances, lowering the clinker factor, upgrading Andhra plant and boosting the share of renewable energy will strengthen our cost efficiencies and overall profitability.
In terms of key operational activities during January ’25, the company has successfully commissioned a 6-megawatt solar power plant at its Gudipadu unit. Further, the company also has received approvals for implementation of another 6 megawatt solar power plant at its Dachepalli unit. The new six-stage construction project at Dachepalli unit is progressing slightly ahead of schedule. Power and fuel cost today at INR1456 per tonne as against INR1701 per tonne reported during Q3 FY ’24.
Freight cost for the quarter stood at INR835 per tonne as against INR864 per ton during Q3 FY ’24. From an operational point-of-view, Mattampally plant operated at 51% utilization, while Gudipadu, Bayyavaram, Jeerabad, Jajpur and Dachepalli plants operated at 93% 68, 78 22% and 32%, respectively, during the quarter. As far as the key balance sheet items are concerned, the gross debt as on 31st December 2024 stood at INR1,462 crores, out of which INR1,123 crores as a long-term debt and the remaining constitutes the working capital. The net-worth of the company on a consolidated basis as on 31st of December 2024 stood at INR1866 crores, debt-equity ratio stands at 0.6621. Cash and bank balances were at INR159 crores as on 31st December 2024.
In summary, we believe our enhanced capacity positions us well to capture the growing infrastructure and real-estate demand over the coming years. Furthermore, our efforts towards diversifying the revenue streams and increasing our regional footprint should help us improving the overall profitability profile of the company.
That concludes my opening remarks. We will now be glad to take any questions that you may have. Thank you.
Questions and Answers:
Manish Valecha
Thank you, sir. We will now begin with the Q&A session. A reminder to all participants, you can ask your question by raise of hand in the participant tab of the Zoom platform. We will wait for a moment for the question queue.
The first question is from Shravan Shah. Please go ahead.
Shravan Shah
Hi, thank you, sir. Sir, couple of questions. So first, in terms of the volume, now do you think that though the number that we have revised downward 5.5 million tonne for this year, so that translates to close to 1.68 million ton in the 4th-quarter. So that should not be a problem and for next year FY ’26, how much volume are we looking at?
Sreekanth Reddy
Yeah. Good morning. I think the guidance that we have given that we would be crossing last year number, I think is very much doable because yes, we have witnessed in-spite of having almost more than a week of festivities in Andhra, even January month has been very, very robust. So given the situation, we don’t see any risk to the number that we have given. Going to the next year, I think we are looking at anywhere between 6.4 million to 6.5 million as a number, which we should able to comfortably achieve because the market situation is that demand has picked-up well, likely that price might take a take time or it might pick up gradually, but demand has been — has been doing extremely well on the market, Mr. Shravan.
Shravan Shah
So now, sir, on the pricing and the profitability for us. So if you can help us — so now the prices versus the exit of December entire South and if possible the state-wise and maybe MP ODC also if you can tell us just it will help us to get idea how the prices are?
Sreekanth Reddy
See, I think December exit all the way up to 10th and 20 prices fortunately remain very, very stable. They have been steady. There has not been an increase, not there have been a decrease. We expect similar trend to continue with the hope that it further doesn’t deteriorate. The hopes of going it up are limited. Probably it will take probably early part of Q1 only then on we expect prices to go up because I think more or less the market — most of the market players are set the rise for the yearly targets rather than taking the price up is what it looks like.
Shravan Shah
So currently, the prices versus if I have to compare with the third quarter average, how much it would be higher in South?
Sreekanth Reddy
I think it is safe to assume around INR2 to INR3, not more. Because in-between it went up, but it gradually slipped down, barring INR2 to INR3 in some of the markets. So I think the price situation has been very, very stable.
Shravan Shah
Similar in the and MP also?
Sreekanth Reddy
Yeah, I think it is very similar.
Shravan Shah
Okay. Okay. And sir, now for us in terms of how we can increase the profitability. So before that, if you can also help this quarter?
Sreekanth Reddy
I think in our case, the bigger advantage is operational leverage. See the EBITDA per ton of what you’re looking at INR275 or INR300 is with very, very limited operating leverage so far. So I think the operating leverage itself should add another INR200 to INR300 per EBITDA per ton kind of a number because as we have seen both the Jajpur as well as Andre Cement’s operating rates are subpar. The best part is Jeerabad is almost nearly close to 100% capacity utilization. So is good and even has picked-up and so is. The good news is even Jajpur is slowly picking-up, so we hope the operating leverage should help us improve the profitability rather than price alone helping us with increased EBITDA.
Shravan Shah
Okay. So in the next entire full-year FY ’26, can we look at 500 plus kind of EBITDA per ton is well.
Sreekanth Reddy
Our internal penciling also is very similar number, Mr. Shravan.
Shravan Shah
Okay. Okay, got it. And sir, this quarter employee cost has gone up INR700 crore INR7 crore odd Q-o-Q.
Sreekanth Reddy
Appraisal. It’s annual. So annual appraisal has kicked-in.
Shravan Shah
Okay, okay, got it. And how much capex already we have done in nine months and for full-year, previously, we were looking at INR200 odd crores and next year INR300 odd crores. So that remains the same?
Sreekanth Reddy
See, the total budgeted capex was around INR329 crores. So the amount that we have spent during Q3 is around INR192 crores. So the amount spent so far for FY ’25 is INR88 crores is what we have spent. The balance to be spent is INR241 crores over next couple of year and a half.
Shravan Shah
Okay. INR242 crore in one and a half year.
Sreekanth Reddy
Yes, sir.
Shravan Shah
Okay. Okay.
Sreekanth Reddy
But bulk of it, as you know, is in.
Shravan Shah
Okay. And anything on the sale of land visag land?
Sreekanth Reddy
Yeah, we are very happy that out of three, we received two approvals. I think by middle of Q1 coming year, I think we should have got all the approvals. So we are just waiting for Cabinet approval to come, which is likely probably during end of Q4 to early part of Q1.
Shravan Shah
Okay. Okay. Got it. Thank you and all the best, sir.
Sreekanth Reddy
Thank you.
Manish Valecha
Thank you. We will take the next question from Tanish Mehta. Please go-ahead.
Tanish Mehta
Hi, sir. I just had a few questions. So the first one was what is our interest-rate on the bank debt? Because if we go by the reported numbers, it looks like we are paying about 12% to 13% as cost of debt. So if you could just speak on that?
Sreekanth Reddy
The bank debt is around 10.5%, Mr. Tanish, that includes the provisions and the other financial costs, but the bank debt is at around 10.5%, Mr. Tanish.
Tanish Mehta
Okay, okay. My second question was with regards to your subsidiaries, so Sagar so that makes about 1,500 EBITDA per ton on a nine-month basis. So what is driving such strong numbers for these entities and why are the others struggling?
Sreekanth Reddy
I think it is to do with the markets, Mr. Tanish, I think that is in a location where demand is healthy. At the same time, there is also incentive support from the state.
Tanish Mehta
Okay. Just last question. What will take Andhra Cements to achieve breakeven and when do you expect that to happen?
Sreekanth Reddy
Yeah. I think it is more to do with the higher capacity utilization. If — had we had very good demand and higher capacity utilization, I think it should have broke even by middle of coming year. But I think end of next financial year, we should be in a situation to breakeven, Mr. Tanish, as far as Andhra is concerned. Because what you have to remember is Andhra, the asset is old, so there is an upgrade that is happening. Once the upgrade is done, I think the turnaround for that company could be a lot more quicker.
Tanish Mehta
Okay. Thank you. And also, why don’t we merge with Andhra Cement today like any reason for that?
Sreekanth Reddy
Yeah, Mr. Tanish, we did state before, we are also eager to merge, but there are certain constraints at this point of time, especially the land approval process and the conversion of land from — from earlier owner’s names to Andhra itself has taken a lot of time. The idea is first to sell the land, monetize the land and then merge the company into Sagar. So we are in the process. So as soon as that part is done, we would be more than happy to merge it at the earliest.
Tanish Mehta
Okay. Thank you so much.
Manish Valecha
Thank you. We’ll take the next question from Jyoti Gupta. Please go-ahead.
Jyoti Gupta
Good morning, sir. My first question is, could you tell me how is the growth rate within the states — in the South region? Where do you see it in quarter four? And while my estimates are in line with what you have just announced, I would like to understand how much despite the improvement in — however, the South prices have not increased, but still what has been the gap in trade and non-trade prices? And where do you see this going-forward in the 4th-quarter?
Sreekanth Reddy
Yeah, I think among all the states, except for Telangana, all the other states, there have been extremely good growth duty. Telangana slightly lag post-election, it never picked-up. There is a hope that with the government initiatives where the government in their manifesto promised five minimum guarantees in that there is a low-cost housing. Yeah, we strongly believe that should also help Telangana pick the demand. But for now, I think Andhra — Andhra is growing very strongly, followed by Tamil Nadu and Karnataka, then only Telangana because unfortunately, the real estate in Hyderabad also has taken a backseat. So given the scenario, Telangana likely pickup is going to take some time. We believe that government push towards low-cost housing probably should be a trigger for even demand pickup in Telangana.
Jyoti Gupta
My other question is, sir, that what is the status of Telangana, but the capital city,, the capital state? What is the progress there?
Sreekanth Reddy
Yeah, I think at this point of time, the government is in a planning stage as well as getting the finances. Yeah, happy to share that some of the finances are getting tied-up fairly quickly, but we believe it is a long-term — long-run process. So we are very hopeful that over next couple of years, I think demand should actually spirit the overall South demand in a big way.
Jyoti Gupta
Okay, sir. Thank you.
Manish Valecha
Thank you. The next question is from Amit Murarka. Please go-ahead.
Amit Murarka
Yeah, hi, good morning. How are you?
Sreekanth Reddy
Yeah. Thank you.
Amit Murarka
Yeah. Just on pricing, you mentioned that this quarter it seems unlikely that there will be some hikes given the volume focus. But then in FY ’26 also, I believe there is a spate of supply. I mean, not just new supply, but also the ramp-up of existing capacities. I think even capacity is not yet ramped-up and then there will be ramp-up in the acquired assets as well along with maybe some commissioning from Aramco and others. So I was just wondering like when does this volume focus go away actually?
Sreekanth Reddy
I wish I had an answer for that focus of the industry would go away from the volumes. But I think the reality is that today people are chasing volume because they have targets to fulfill. But I think at this price point, I don’t think it makes sense for any industry more so in our sector for them — for us to continue to pursue the volumes vis-a-vis to, I would not say huge profits, but breakeven profits. It’s true that there is some amount of supply that is likely to happen and that is likely to continue. We don’t see any stoppage to supply coming into the market. Fortunately, that supply is likely to be in a gradual kind of thing, not in a single bust. But we strongly believe that industry cannot run the way it is with only volume focus. So, that situation gives us comfort that at some point, all of us players would start focusing on margins also.
Amit Murarka
Right. Also, what is the current status on clinker unit? I think they had commissioned, but is it right that…
Sreekanth Reddy
You will be better informed than myself.
Amit Murarka
Okay, sure. Sure. I’ll come back-in the queue. Thank you.
Manish Valecha
Thank you. We’ll take the next question from Garvit Goyal. Please go-ahead.
Garvit Goyal
Hi. Am I audible?
Manish Valecha
Yes, please go-ahead.
Garvit Goyal
Good morning, sir. My question is basically on the broader view. I want to understand from you, like one of the key growth drivers for this industry is obviously the government capex. So firstly, can you help me to understand like how do you see government’s focus like is it — are you seeing any slowdown happening in the government capex in the upcoming months or upcoming budget?
And secondly, like we all know, Q3, we were expecting it to be the better in terms of the recovery we can say, at least on Y-on-Y basis. But if we see overall industry-wise, Y-on-Y, the construction sector is not that — not doing that much good that was the expectation. So can you put some color on that aspect as well, like what is the reasons like why this recovery, but slow recovery is happening. So can you put some color on it?
Sreekanth Reddy
Yeah, Mr. Gavit, see, the cement industry typically follows the election calendar, sir. Six months before election to six months-to a year post-election, typically things tends to slow-down. So even in this election cycle, it’s no exception. In fact, unfortunately, the election cycle this time has been fairly long because some of the states where we have our assets, elections happened close to a year back like Madhya Pradesh, Telangana and these two states had an election almost more than a year back.
Then it followed with the general elections that is federal elections. So that did not help demand to pick-up fairly quickly. So it took time. Now immediately after the election, we did expect the ramp-up to happen. Unfortunately, the weather did not permit. But as the weather improved, I think demand actually shot up. Just to give you, sir, if you look at our Q1 and Q2 numbers, we were down by almost close to 30% lower. Today, we are talking of more than catching-up by end of this Q4 itself. That means the pickup has been fairly sharp during the Q3 and we expect the same momentum to continue all the way up to-end of Q4 still.
Now coming back to the question that you had regarding the capex spend from the government, I think government has a very ambitious kind of a plan in terms of the infrastructure built-up, which is a very, very good news for our industry. Now how soon that will happen and how quickly, only time will tell, but we are more than hopeful that should help the demand pick pickup to sustain and you know also margins to improve going forward, Mr. Garvit.
Garvit Goyal
And how Q4 is going on like in terms of you mentioned demand is picking-up, demand already picked-up actually.
Sreekanth Reddy
I can only talk. I can only talk in general. See, January month in Andhra is almost — a week of it is usually a festivities because of Sankranti. The whole week would be lost. In-spite of loss of week, I think it has been an extremely strong month. That only indicates that Q4 also is going very, very strong.
Garvit Goyal
Understood, sir. Thank you very much, sir. All the best, sir.
Sreekanth Reddy
Thank you.
Manish Valecha
Thank you. We will take the next question from Vibha Jain. Please go-ahead.
Vibha Jain
Yeah. Hi, sir. Sir, I wanted to understand about the fuel consumption cost like what was the cost during the quarter and what do we expect in the coming quarter? Hello?
Manish Valecha
Sir, you are on-mute. Sorry we cannot hear you.
Sreekanth Reddy
It is 1,466 INR1,466 per tonne of cement. In-spite of having higher OPC, the fuel cost is slightly higher. That is only purely on account of blending — blended cement being lower. We expect similar — similar things to continue because power and fuel more or less is flattened out for us.
Vibha Jain
Okay. So sir, actually, sir, you talk about the operating leverage of around 200 to 300 per tonne EBITDA per ton. So can you sir, please break it up like from where we can get?
Sreekanth Reddy
See, I think the frequent starts and stops that itself should add-up another INR50 to INR75, because every time there is a clinker stock or cement stock, we keep shredding the plant. So every time it starts drops, there is a lot of inefficiency. And the best part is if you do more volumes, your fixed-cost — I mean, which is part of EBITDA, which is the salaries and wages itself should give a better spread. I think these are the two major significant contributors. Other than the other fixed overheads which are part of EBITDA, these are some of the things which we strongly believe that should help us overcome that. But Andhra itself should contribute quite significantly to the overall kind of a bottom-line because the negative — see, I think there are losses under at EBITDA level that itself we expect it to start break-evening. So if you remove that negative, I think we are close to around INR50 to INR400 EBITDA per ton as we speak itself for.
Vibha Jain
Okay, sir. Thank you so much.
Sreekanth Reddy
Thank you.
Manish Valecha
Thank you. We’ll take the next question from the line of Eshwar Arumugam. Please go-ahead.
Eshwar Arumugam
Good morning, sir. Thank you for taking my question. So I just wanted to get your view on the evolving competition in the South markets, because in the past two years there has been a lot of M&A activities in the South by the top two, three players. Also, like there’s an opinion on the street that the prices are being artificially kept low in the South because in order to fuel more M&As, what is your opinion on that?
Sreekanth Reddy
Yeah, Mr. Eshwar, the most respected minister has a different view than you are being. Do you think that we can keep price higher or lower? I think most of the players are trying to look at players who are new to the market or who have additional volumes, started putting more volumes than what market needed. I think that pushed the prices lower. It’s true that there is some — M&A activities have happened and that too on the top layers. But if you look at South again north of South and South of South, north of South, the impact of M&A may not be as significant, sir, as we speak of South of South. Because South of South obviously you have lot more consolidation because India cements is with UltraTech.
And if you look at North of South UltraTech acquisition of Kesoram as well as Orient acquisition of Adani and Penna again has presence both in North of South and South of South. All-in all, number of market actors, probably it got reduced by only one or two, but you still have 35 plus actors sitting in this region, Mr. Eshwar. So the competitive intensity may not have significantly come down, say sure. And how long will people continue to keep the prices lower, it is not in their own interest because after acquiring the assets at whatever the price, even the lowest dollar that you see in the market definitely demands minimum of INR1,000 to INR1,200 EBITDA per ton for them to justify the acquisitions that they have done. So given that scenario, this may not be forever. And we are not seeing this for the first time in our history. We did went through this situation where we went by this similar kind of a situation even in the past, close to a decade back, we believe we should come out sooner than later the stage.
Eshwar Arumugam
Got it. And so what is your view on the pet coke and coal prices going-forward the next financial year? Because it has been a — I think pet coke prices have been depressed in the last financial year. What is our…
Sreekanth Reddy
I would not say depressed sir. I think they are more or less flat with $1 to $2 fluctuation that we have seen. Yeah, we believe that next six months, the prices might remain more or less stable. With Trump coming in a significant way, people talk that the oil prices might come down, that might put some influence on the petcoke pet coal prices going lower. Now coming back to the coal prices, again in India, you’re talking of imported coal prices and you’re talking of domestic coal prices. Domestic coal prices have no correlation with the international market, so it’s more coal companies deciding on it, we don’t see them making significant moves given the economy and the coal pricing, imported coal prices the way they are. So we expect all-in all prices to remain more or less flat.
Eshwar Arumugam
Got it. Got it. And your capex updates slide you’ve given in the presentations there. So how many — how much margin savings do you expect to accrue from these waste-heat recovery and solar capex in the coming years?
Sreekanth Reddy
The base heat recovery at Gurupadu should save anywhere between INR50 to INR75 per ton, primarily because of electricity. But Andhra’s upgrade should help us save anywhere between INR350 to INR400 per ton in terms of cost structure at level, sir.
Eshwar Arumugam
Great. Right, sir. That’s all the questions I have. Thank you.
Manish Valecha
Thank you. Thank you. Anyone who has a question may please indicate by raise of hands. In the meanwhile, sir, I have a couple of questions. I just wanted to understand the timeline for Andhra commissioning of the or of the expanded capacity basically.
Sreekanth Reddy
Yeah, Manish, as indicated, we initially commented that we should be ready by March of ’26. But as we speak, we are running almost good quarter two, four months ahead of schedule. We should in all likelihood be ready for Dussehra, which is in October, November, we should be ready to commission the Andhra plant, especially the preheater. I think up to clinkerization, which is a significant investment that we should be ready by October-November, Mr. Manish.
Manish Valecha
Okay. So second-half should see that benefits of from coming in flowing in from Andhra to a large extent. Sir, you are on-mute, sir.
Sreekanth Reddy
I think next year Q4, we should — we should start seeing some amount of benefits from Andhra.
Manish Valecha
Got it. In terms of monetization of land also, yeah, approvals may come in by Q1. So can we expect something by Q2, Q3.
Sreekanth Reddy
I think that is too soon, Manish. I think next year we should expect monetization. We did expect it to happen in a phased manner. But once we get the approval within a year and a half, we expect the entire money to have flowed into the company. Since it’s a large land parcel for Vizag, I wish there was single buyer for the entire parcel, but we expect it to be broken-down into multiple pieces and it should take a year and a half once we get the approval for us to monetize the land.
Manish Valecha
Got it. Sir, as there are no further questions, I would like to hand over to you for the closing comments, sir.
Sreekanth Reddy
So we would once again like to thank you all for joining us on the call. I hope you got all the answers you are looking for. Please feel free to connect our team at Sagar or CDR. Should you need any further information or any — if you have any further queries. We’ll be more than happy to address them and discuss them with you. Thank you, and have a good day.
Manish Valecha
Thank you. We will now end the call. Thank you so much.
Sreekanth Reddy
Thank you, Manish. Thanks.