Sagar Cements Limited (502090) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome you all to the Q1 FY '27 Results Conference Call of Sagar Cements Limited. From the management, we have with us today, Mr. Sreekanth Reddy, Joint Managing Director; Mr. K. Prasad, Chief Financial Officer; Mr. Rajesh Singh, Chief Marketing Officer; and Mr. Raja Reddy, the Company Secretary. I would now like to hand over the call to Gavin Desa from CDR India for his opening comments, post which we will hand over the call to management. Over to you, Gavin.

Thank you, Vibha, and thank you for introducing the management. We will begin this call with opening remarks from the management, following which we will have an open -- the floor open for an interactive Q&A session. Before we begin, I would just like to point out that some statements made in today's discussions may be forward-looking in nature, and a note to that effect was stated in the con call invite sent to you earlier. I would now like to hand over to Mr. Sreekanth Reddy for his opening remarks. Over to you, Sreekanth.

Thank you, Gavin. Good morning, everyone, and welcome to Sagar Cements' earnings call for the quarter ended June 30, 2026. Let me begin the discussion with a brief overview of the market, post which I will move on to Sagar-specific developments. The quarter witnessed a mixed operating environment for the cement industry. Demand remained broadly healthy across most regions, supported by continued government-led infrastructure spending, resilient housing activity and a steady progress in construction across both urban and rural markets. While the underlying demand environment remained encouraging, growth during the quarter was temporarily impacted by heat wave across several parts of the country, which in turn affected the construction activity to a certain extent as well as election-related labor shortages in parts of Eastern and Southern India that led to a short-term execution challenges. On the pricing front, realization improved at the beginning of the quarter, supported by price hikes across several markets. However, pricing momentum moderated towards the end of the quarter amid competitive intensity and regional market dynamics, resulting in broadly stable to marginally improved realization on a sequential basis. Despite these near-term headwinds, the industry's long-term demand outlook remains favorable, supported by sustained infrastructure investments, continued urbanization and a healthy pipeline of housing and industrial projects. Moving on to Sager-specific developments. We delivered a healthy volume growth of around 13% during the quarter, reflecting resilient demand across our key markets and disciplined execution by our teams. Consequently, revenue increased by 5% year-on-year, driven primarily by higher volumes, while realizations remained broadly stable. We remain confident of achieving volumes of approximately 7 million tonnes in FY '27, supported by our expanding market presence and ongoing operational initiatives. Our pricing remained broadly stable with a marginal sequential improvement, reflecting our disciplined market approach. From an operational standpoint, EBITDA per tonne for the quarter stood at INR 451. As anticipated, profitability and margins moderated during Q1 due to elevated input prices across the energy, fuel and packaging amid the geopolitical tensions in West Asia. While the price increases undertaken during the quarter helped offset a part of the cost inflation, they were insufficient to fulfill, mitigate the impact. Looking ahead, we expect the input cost pressures to gradually ease as the geopolitical situation normalizes. At the same time, our continued focus on cost optimization through waste heat recovery systems, increased use of green energy and the ongoing plant efficiency initiatives will further strengthen our cost structure and support margin improvement over the medium term. On the CapEx front, we successfully commissioned the remaining 1.55 megawatt waste heat recovery out of the total installed capacity of 4.35 megawatts at our Gudipadu plant and completed the 0.5 million tonne capacity expansion at our Jeerabad unit during the quarter. These investments enhance our manufacturing footprint, improve operating efficiencies and position us well to capture the future demand. At the same time, 0.75 million tonne expansion at Andhra is likely to be completed before end of this current quarter. From an operational -- power and fuel cost stood at INR 1,484 per tonne as against INR 1,450 per tonne reported during Q1 FY '26. Freight cost for the quarter stood at INR 858 per tonne as against INR 860 per tonne during Q1 FY '26. From an operational point of view, Mattampally operated at 65% utilization while Gudipadu, Bayyavaram, Jeerabad, Jajpur and Dachepalli plants operated at 79%, 67%, 96%, 50% and 42%, respectively, during the quarter. Loss after profit after tax for the quarter stood at INR 28 crores. As far as the key balance sheet items are concerned, the gross debt as on 30 June, 2026 stood at INR 1,704 crores, out of which INR 1,434 crores is the long-term debt and the remaining constitutes the working capital. The net worth of the company on a consolidated basis as on 30 June, 2026 stood at INR 1,833 crores. Debt equity ratio stands at 0.78:1. Cash and bank balances at INR 105 crores as on 30 June 2026. That concludes my opening remarks. We would now be glad to take any questions that you may have. Thank you.

[Operator Instructions] We will take the first question from Mr. Shravan Shah.

Sir, a couple of questions. So, first on the volume front also, we are maintaining a 7 million tonne for this year. So obviously, I assume this is only the sales volume and not the clinker sale. So, just to get a broad understanding how much clinker sale now we are looking at in Q2 and maybe for the full year or from Q3 onwards, do we -- we'll not have any kind of a clinker sale?

Yes. Shravan, I think the 7 million tonne is excluding the clinker sale. As far as clinker sale is concerned, there are 2 aspects. One is to the outside and one is to the group. I think also we will continue to sell clinker to Bayyavaram. At Jeerabad, this volume stabilizes, which we expect the ramp-up to happen ASAP. But till such time, we continue to sell some portion of clinker. Quantifying them at this point of time, I think we would revert with exact volumes in due course of time, Mr. Shravan, but 7 million tonnes doesn't include clinker sales.

Got it. And for next year, FY '28, can we see a kind of a double-digit volume growth for us?

I think even this year, it's a double-digit growth, Mr. Shravan. And for next year also, we are expecting something similar in terms of a percentage, Mr. Shah.

Yes. And now, sir, in terms of the profitability, obviously, so that depends on the cost and the pricing. So just to cover both the aspects. So in Q2, how much more for us in terms of per tonne basis, so whatever the power and fuel increase and maybe some marginal increase could be even on the diesel front, maybe packing that could be kind of setting it off. So just to understand in Q2, how much are we looking to have a cost inflation on a per tonne basis? And if whatever the number would be then in terms of -- we were looking at INR 600-odd per tonne for full year, EBITDA per tonne. So are we still sticking to that number?

I think, Shravan, Q2, as you know, the fuel increase is -- for the full year, we are expecting fuel plus raw material plus other miscellaneous expenditures by INR 100 a tonne, sir. But we expect a matching kind of a savings. So net-net, we might remain very similar. Going specific to Q2, sir, we would be taking maintenance at 3 of our plants. So, we do expect some amount of cost increases only on account of inventory because we have stocked up. So, we would be consuming -- we don't expect a big shift in the volumes that we have to sell, but we expect some amount of inventory cost to go up. But all said and done, I think we should more than make up in Q3 and Q4. What we have indicated and what we remain committed is around INR 500 to INR 550 EBITDA per tonne. I think it is doable because we expect prices to remain stable, but most of our cost initiatives, the waste heat recovery at Gudipadu, expansion at Jeerabad as well as Andhra to be available in the next half -- for most part of next half. So, we expect whatever cost inflation of INR 100, we expect it to more than offset and contribute. So, we do expect anywhere between INR 500 to INR 550 EBITDA per tonne, Mr. Shravan. Assuming that, there are no changes in the price.

Yes. So, there on the pricing front, so currently, are the prices stable versus Q1 averages broadly in our core markets?

I think in the market from March, April to July, it has been flat, sir. And I mean, June to July also, it has been flat. So, of course, there were certain price increases that have happened in between, but more or less everything got moderated. So fortunately, prices remain flat. They did not go down, sir. With a slight positive, I think overall, we have seen anywhere between INR 50 to INR 60 kind of a realization. But I don't know what we have to attribute it to. Is it product mix or some amount of price increases that have happened in the region? We could sustain a very, very miniscule portion or if prices remain very, very stable, Mr. Shravan.

Sir, lastly on Vizag sale, so where are we now with this?

We are waiting for the government. Sir, we are only waiting for 1 final government approval. We are expecting the G.O. earlier. We were expecting it specific for us. Now, I think government wants to programmate a generic kind of a thing. So, we are waiting for that to come back for us to start monetizing the land, Mr. Shravan.

So this year, INR 150-odd crores, we were looking a will....

I think that remains doable, Mr. Shravan.

We will take the next question from [ Janvi Mudhra ].

Sir, which regions are expected to continue the highest incremental demand during the second half of financial year '27?

I think South -- see, we have almost a footprint of close to 80% in South, Janvi. So, our incremental volumes are coming from South. If you have seen the general market trends in South, they have been very robust, barring Karnataka, which remain flat. Post election, Tamil Nadu demand also picked up. AP, Telangana is doing very well. In our case, even Madhya Pradesh remains a very strong market because we just expanded by 0.5 million. So, we also expect our volumes to slightly be higher even in Madhya Pradesh, move higher in Madhya Pradesh too. So, these are the regions, which are likely to contribute for our 15% kind of a growth that we have projected for the current year.

We will take the next question from Rajesh Ravi.

Sir, just looking at the segmental breakup or rather the individual, the company level breakup, how should we look at the cost line -- cost items for Andhra? It still seems to be operating at more than INR 5,000 per tonne of cost structure. So what's -- where is this cost line -- the operating cost structure of Andhra?

I think there are 2 aspects you have to look at. One is the fixed cost and the other is the variable. Yes, the variable cost is around INR 100 to INR 125 higher at Andhra compared to Mattampally. Again, it's on relative, Mr. Rajesh. The specific metric in terms of clinker and number of units, I think it is far more efficient or at par with Mattampally. But the only problem is cost per electrical unit. Since Mattampally operates waste heat recovery, Andhra does not have that. So, we still source a substantial portion of our electricity from the grid, which is relatively higher compared to the waste heat recovery that we have at Mattampally. So, that unfortunately is translating to INR 125 higher price on a variable cost basis at Andhra compared to Mattampally, sir.

But sir, if I look at the cost difference here, Mattampally plant is operating close to INR 4,000, whereas this one is at INR 5,100, INR 5,200.

These are not directly, sir. These are product mix and everything would be substantially different, Mr. Rajesh. See, Mattampally would have a lot of PPC relative to Mattampally, which would produce OPC. So very specific metric, even if you have to look at each of the product-wise. The gap on a product basis should be anywhere between INR 100 to [ INR 120 ].

Okay. So incrementally, if I have to model these 3 units separately, so we should be looking at -- how should we look at then?

See, I think fixed cost is very different because as you know, bulk of our debt that sits at Andhra, not at Mattampally. Mattampally is debt free, sir. So it's only a matter of time when Andhra would get consolidated into -- I mean, rather merge into Mattampally -- into Sagar, Mr. Rajesh. But any specific, I think we would be more than happy to share those modeling details offline.

Sure, sure, sir. So, you are still confident that on including the clinker sales volume, EBITDA per tonne, which is close to INR 425 in Q1, for full-year basis, we could touch INR 600.

INR550 is definitely, doable, Mr. Rajesh, as I mentioned to you. See, waste heat recovery at Gudipadu just got commissioned. So, bulk of the savings from that, we should start achieving or realizing in the next few quarters. Same would be the case with Jeerabad expansion. And also at the grinding plant, the cement mill at -- the grinding cement mill at Andhra is due for commissioning end of September. So, these 3 should start contributing, assuming that prices remain stable or where they are. I think INR 550 is definitely doable.

Great. Sir, last question. When you mentioned on the Q2 cost structure increasing by around INR 100 per tonne and that too largely getting offset by some operating efficiency, you're implying that sequentially, your operating cost, assuming sequentially, there is a volume decline also and there will be maintenance-related expenses Q2 versus Q1?

Yes. I think Q2 definitely, as you are aware, it's seasonally a difficult quarter because most of the operational metric would be under stress because of rains and shutdown. At the same time, maintenance expenditure, which again optically looks higher for Q2, which will have a better spread. But Q2 is definitely going to be, I would not say a challenging quarter, but these are known operational kind of -- where we know for sure, some amount of operational metrics will be below par compared to the other. And we are more than -- I think in our understanding, we will more than make up for that in Q3 and Q4, Rajesh.

Understood. And sir, just want to get some update on the land sale, what is the status?

Yes, we are just waiting for the final government approval, Mr. Rajesh, and we hope to get INR 150 crores of realization in the current year. We are waiting for the final G.O. Earlier, it was supposed to be specific for that particular asset. But government after reviewing, they said that they would come up with a generic because there are quite a few assets which are similar to ours. So government -- the department clarified to us telling that they would issue a generic G.O., which should be helping us to start the process and start monetizing the asset, Rajesh.

Understood. So, this is more of a formality where you are awaiting, getting the...

Yes, sir. I think it was the case even before. Even now it is -- we are just waiting for that G.O. to come because something similar G.O. was issued in Telangana a few months back, sir. So, something similar is likely to happen in Andhra. That's what was the indication from [ folks ] there. So, we are waiting for that to happen for us to start the process.

And you have the buyer in place, sir, for the....

See, there have been engagements, but in our case, time lines is something which we could not address. But given the buoyancy in the Vizag market now, yes, quite a few people have approached, Mr. Rajesh.

We will take the next question from chat box from Mr. [ Rohan ]. Are we seeing good demand from development of Amaravati Capital? Should we expect increase in demand in pricing due to this?

Yes. I think, as I mentioned, demand has been very, very strong. I think Amaravati is one of the prime mover for the demand in Andhra. Even in Telangana, government did start 6 lakh houses in Indiramma, what they call as low-cost housing. So, these are 2 flagship demand drivers from a government-led initiative. But even otherwise, private demand also has been very, very strong. Yes, will prices move up? Prices have to move up because if you look at last 10-year inflation on cement pricing, I think it is flat. So, that should also push whereas the cost inflation has been quite substantial. So even from that perspective, prices have to move up. Prices did go up, but unfortunately, they could not hold up for -- because of the volatility in demand on a month-to-month. Unfortunately, most of the industry players are losing patients and competitive intensity sometimes flares up. But prices are bound to go up. It's a question of when and by how much.

We take the next question from Mr. Sarthak Sancheti.

So, my first question is actually regarding demand. I wanted to give you some more flavor about state-wise demand and how is demand faring in both the trade and non-trade segment, like the channel feedback which we were getting were actually that the demand in South region is below other regions and it's underperforming. So just if you can give some flavor regarding that?

See, I think, for the Q1 year-on-year numbers that we see both for AP and Telangana together is almost close to 11%. Karnataka is flat, as I mentioned. Tamil Nadu has grown close to 4%. This is in spite of April being negative because of the elections and the post-election kind of a thing. But June alone, it actually grew very, very healthy at 20% year-on-year kind of a number. Kerala has been growing steadily at 12%. So, that makes the overall South demand on an average close to around 6%. That's what -- we believe that the South demand should be anywhere between 8% to 10% for the year, sir. So far, it is close to 6%, 6.5% in spite of a few challenging months in the region, primarily on account of elections that have happened, both in Kerala and Tamil Nadu. Usually, the first 6 months post-election, things tends to be slower, but we believe that it should ramp up to 8% to 10% kind of -- overall kind of a demand in South. Now, I cannot speak about all India. Our market footprints, Maharashtra has been very healthy. Orissa has been extremely healthy because government initiatives slowly started showing up. Madhya Pradesh, we have seen around 9% to 10% growth already. So, this is the information we have for the states, Mr. Sancheti.

Yes. And next question would be, like, how has demand actually fared up in July? We have seen delayed monsoon across the country. So like, is this helping pushing up the demand?

I think July, we have to wait. We are yet to conclude the month. But more or less, demand looks to be very, very similar trend as Q1. Like Andhra, Telangana, we expect it to still grow because delay in monsoon in some pockets of this market, construction activity is still going on. I think labor, which was missing for the most part of Q1 have come back. So, we expect July month to be very similar to how the June was.