Geojit Financial Services has reiterated its BUY recommendation on Sagar Cements Limited, setting a 12-month target price of Rs. 244, implying an upside of nearly 20% from the current market price of Rs. 203. The brokerage’s optimism stems from an anticipated recovery in margins, normalization of utilization across newly acquired assets, and structural cost efficiencies. While the December quarter reflected operational pressures and elevated losses, management guidance suggests a sharp earnings inflection over the next two years as expansion benefits crystallize and debt metrics improve.

Executive Snapshot: Transitional Quarter, Structural Opportunity

Sagar Cements reported a muted Q3FY26 performance marked by softer realizations and weak utilization at select units, particularly Andhra Cements (Dachepalli). Revenue grew approximately 5% year-on-year to Rs. 590 crore, driven by 7% volume growth. However, EBITDA margins contracted 30 basis points to 6.3%, reflecting pricing pressures and the absence of earlier incentives.

The company reported a net loss of Rs. 64 crore, widening from Rs. 55 crore in the prior year. Yet, beneath the headline numbers lies a transformation story: ramp-up in new capacities, commissioning of cost-saving initiatives, and targeted deleveraging through land monetization.

Volume-Led Revenue Growth Amid Pricing Headwinds

Sales rose 4.6% YoY to Rs. 590 crore in Q3FY26, supported by cement volumes of 1.5 million tonnes, up 7.2% year-on-year. However, realizations softened to Rs. 3,986 per tonne, down 2.4% YoY, reflecting competitive intensity in Southern markets.

On a nine-month basis, revenue expanded 16.4% to Rs. 1,863 crore, underscoring demand resilience. The infrastructure push and GST rationalization on construction materials are expected to sustain momentum.

Profitability Under Pressure, But Recovery Visible

EBITDA stood at Rs. 37 crore in Q3FY26, down marginally from Rs. 38 crore a year ago. Margin compression was primarily attributable to weaker realizations and higher power and fuel costs.

Reported PAT stood at a loss of Rs. 64 crore, compared to a Rs. 55 crore loss last year. For 9MFY26, adjusted PAT loss narrowed to Rs. 105 crore from Rs. 139 crore, indicating gradual operational stabilization.

Management has guided for FY26 EBITDA per tonne of approximately Rs. 500, a significant improvement from Rs. 256 in FY25, implying strong second-half recovery.

Capacity Utilization: Stabilization in Progress

Plant utilization in Q3FY26 varied widely:

The underperformance at Dachepalli was largely transitional following upgrades. Management expects normalization over the coming quarters, especially as the newly commissioned six-stage preheater enhances efficiency.

Total installed capacity stands at 10.5 MTPA and is projected to reach 12 MTPA by FY27.

Cost Rationalization: Structural Margin Drivers

The company is aggressively pursuing cost optimization:

Waste Heat Recovery (4.35 MW at Gudipadu) expected to deliver Rs. 100–125 per tonne savings.

Jeerabad expansion to yield Rs. 150–250 per tonne efficiencies.

Andhra plant upgrades to deliver approximately Rs. 250 per tonne cost reduction.

Additionally, the green power mix improved to 22% from 14% in the previous quarter, enhancing long-term cost visibility.

Capex, Balance Sheet & Land Monetization

FY26 capex has been revised upward to Rs. 489 crore, with Rs. 303 crore already incurred in the first nine months. FY27 capex guidance stands at Rs. 291 crore.

Net debt currently stands at approximately Rs. 1,669 crore, with debt-to-equity at 1.2x. Importantly, the company has secured clearance to monetize 107 acres of surplus land, valued at Rs. 350 crore (applied at 20% discount for valuation), expected to reduce leverage materially over the next 18 months.

Financial Trajectory: Earnings Inflection by FY28

Geojit’s revised projections reflect a tempered near-term outlook but strong medium-term recovery:

EBITDA margin is expected to expand from 10.3% in FY26E to 14% by FY28E, supported by operating leverage and cost efficiencies.

Valuation Framework: SOTP Supports Upside

Geojit values the core cement business at 10x FY27 EV/EBITDA of Rs. 463 crore, implying enterprise value of Rs. 4,580 crore. After adjusting for net debt and adding land monetization value, the target price works out to Rs. 244 per share. At current levels, the stock trades at approximately 9.3x FY28E EV/EBITDA, offering attractive risk-reward in anticipation of earnings recovery.

Investment View: Transitional Pain, Strategic Gain

Sagar Cements is navigating a challenging operational phase marked by integration and pricing volatility. However, the strategic expansion into Andhra Cements, capacity ramp-up to 12 MTPA, green energy adoption, and structural cost reductions position the company for meaningful profitability recovery by FY27–FY28.

With infrastructure demand tailwinds, improving realizations, and deleveraging prospects, the brokerage maintains a BUY rating with a 12-month target of Rs. 244, representing nearly 20% upside from current levels.