Sagar Cements - Latest Acquisition To Further Solidify Presence In South: ICICI Direct

ICICI Direct Report

The National Company Law Tribunal has approved resolution plan for acquisition of Andhra Cements by Sagar Cements Ltd., which would help achieve its target of 10 million tonne by FY25E.

Sagar Cements would be acquiring an integrated unit, with clinker capacity of 1.65 million tonne and cement capacity of 1.8 million tonne along with 30 mega watt captive power plant located at Guntur District, Andhra Pradesh (Durga Cement Works). It will also acquire a grinding unit, with capacity of 0.8 million tonne at Vizag, AP (Vishaka Cement Works, contemplating discontinuing this plant and might look to monetise the land in the medium term).

It is expected to spend ~Rs 762 crore towards acquisition and restarting capex of Rs 85 crore. Further, the board has also approved an additional capital outlay of Rs 468 crore for enhancement of the clinker capacity to 2.3 million tonne and cement capacity to 3 million tonne for its DCW unit.

Overall capex of ~ Rs 1400 crore to be spent over the next three years with acquisition cost coming in at $56/tonne (versus greenfield implementation cost of $100/tonne).

Recent commissioning of new capacities (2.5 million tonne in central and East) and latest acquisition of Andhra Cement would propel healthy volume compound annual growth rate of 23% in FY22-25E.

On the balance sheet front, we expect the company to generate operating cash flow worth Rs 1160 crore (excluding interest cost) in FY23-25E versus overall capex at ~ Rs 1480 crore during the same period. Hence, we expect debt to remain elevated (debt/equity expected at 0.9 times in FY25E).

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