Sagar Cements LTD

With a GDP growth of nearly 7% in 2017, India continued to be one of the fastest growing economies in the world. In recent years, growth in the construction industry (2-3% per year) lagged behind GDP growth as a result of delays in large infrastructure projects and the challenges presented by the demonetization of the Indian banknotes. In the past few months, however, growth in the construction industry has accelerated, and this trend is expected to continue. There are two main drivers: (i) India’s growing and increasingly urban population, with 100 million people more in urban areas by 2025, and (ii) major public spending on infrastructure, with a budget allocation of 50 billion euros for infrastructure development in 2018 and 10 billion euros allocated for the ‘smart cities’ and ‘housing for all’ government programs in the next five years.

Sagar’s home area in the south of India has for many years now been confronted with an overcapacity in cement production. This was no different in 2017, and yet the capacity utilization in the area increased from 47% to 49%. As the increase in demand is set to exceed the increase in capacity during the next few years, capacity utilization is expected to improve further to 61% by 2021.

Sagar Cements increased its turnover in 2017 by 27%, from 7,690 million INR (103.6 million euros) in 2016 to 9,773 million INR (132.1 million euros) in 2017. This increase was partly attributable to the expansion of the capacity of the Mattampally plant (from 2.75 million tonnes to 3.0 million tonnes) and of the grinding unit in Vizag (from 0.18 million tonnes to 0.30 million tonnes), thereby increasing Sagar’s total capacity to 4.3 million tonnes. The turnover growth was also boosted by a higher average capacity utilization (from 54% in 2016 to 57% in 2017) and a modest increase in market prices. The EBITDA margin in 2017 was slightly below that of 2016 (14.8% versus 15.8%), primarily as a result of the sharp rise in coal prices (+25%).

Sagar Cements continues to invest in energy-efficient measures to further reduce its dependence on coal and electricity from the national grid. In 2017, Sagar commissioned a 1.25 MW photovoltaic installation and a 6 MW heat recovery system at the Mattampally plant. It also started construction work on its own 18 MW thermal power plant which is expected to become operational in early 2019.