Sagar Cements gains 3 per cent on acquisition news

The shares of Sagar Cements rose 3 per cent during the Thursday morning trading session after the company announced that it would be increasing its stake in Jajpur Cements and Satguru Cement.

In its acquisition of Satguru Cement, Sagar Cement will fund the entire equity portion capital expenditure required for the construction of a 1 MTPA facility in addition to the captive WHR power plant. Moreover, there will be addition of nearly 60 mn tonnes of limestone reserves. The construction will take place over a period of two years and the company will make use of the basic civil structures available with the existing plant for completion of the project.

Furthermore, Sagar Cements is set to acquire the entire shareholding from the current promoters of Jajpur Cement. It will also seek requisite approvals for the construction of a cement grinding facility with a capacity of 1.5 MTPA. Sagar Cements will source clinker from its Matampally plant.

Such systematic expansion into new markets will offer several benefits to the company. Some of these benefits are as follows:

• Since both plants being acquired are located at strategically beneficial locations, the company has strong growth opportunities.

• It will gain access to new markets with attractive margins.

• The acquisition will enhance its group presence, which will in turn limit the ramification of exposure to region-specific risks.

• The scale of operations will expand.

• The company will enjoy an addition to its limestone reserves.

However, just like with any other project, there are some financial implications of the acquisition that the company will have to face. These include raising incremental debt of Rs 475 crore for new projects, secured at 10.25 per cent and repayable over 12 years and equity infusion of Rs 258 crore. This would bring the total term debt of the group to Rs. 727 crore in FY2021. Moreover, the company’s D/E ratio post acquisition would be 0.59 in FY21 as compared to 0.48 pre-acquisition in FY19.

Overall, Sagar Cements has doubled its capacity every 10 years and has bolstered its presence across chief southern markets to capture the recovery in South. It has also expanded its presence in the East with the acquisition of Bayyavaram and its subsequent expansion.

On Thursday, the shares of Sagar Cements opened at Rs. 694.45, and hit a high and low of Rs. 694.50 and Rs. 672.50, respectively. At 12:15 pm, the stock was trading at Rs. 672.50, down by 0.22 per cent.