Sagar Cements tanks 12%, hits 52-week low on growth concerns

The geopolitical tensions between Russia and Ukraine have resulted in sharp increase in pet coke and coal prices, thereby, denting overall profitability of the business.

Shares of Sagar Cements hit 52-week low of Rs 172 and tanked 12 per cent on the BSE in Thursday’s trade on growth concerns. The stock fell below its previous low of Rs 193.25 that it had touched on June 13, 2022. With today’s fall, the stock has corrected 46 per cent from its 52-week high level of Rs 319, hit on August 6, 2021.

The rise in input costs; especially fuel, pet coke and coal prices have dampened EBITDA margins of cement companies during the second half of the fiscal year 2021-22. Further, the geopolitical tensions between Russia and Ukraine resulted in sharp increase in pet coke and coal prices, thereby, denting overall profitability of the business.

"The demand from urban housing, which was hit hard by the pandemic during the last couple of years, witnessed a mild recovery during FY22. However, with the on-going Russia-Ukraine conflict, impacting input costs and constrained supply position as weather and environmental concerns in key producing countries such as South Africa, Indonesia and China, pose a serious challenge for the sector," the company said in their FY22 annual report.

Power and fuel costs, which were earlier expected to peak during second half of FY22, will now witness a sharp increase in FY23, as coal and pet coke prices hit new high in March 2022. Thus, the management remains cautiously optimistic about the future outlook.

While FY23 is likely to witness one of the highest capacity additions, majority of grinding units will be set-up to optimize costs more than adding supplies. Thereafter, the capacity utilisation is expected to remain at around 65 per cent. However, the management believes that the government's initiatives on infrastructure, including proposal to allocate funds in the form of interest free loans to fund the PM Gati Shakti Scheme and issuance of green bonds would help drive demand for cement.

Presently, the cement produced from the company’s plants caters to markets in Telangana, Andhra Pradesh, Karnataka, Maharashtra, Chhattisgarh, Odisha, Jharkhand, Madhya Pradesh, Tamil Nadu and Gujarat.