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* Volume de‐growth of SGC at 32% y/y was in‐line with industry demand de‐growth. Consolidated volumes for the quarter was 0.56 MT. Accordingly net sales of Rs 2,641 mn witnessed a decline of 23.3% y/y. Green shoots were particularly visible in rural segment demand and Government orders in Andhra during Q1 – both are expected to sustain going ahead as well.
* EBITDA/te for Q1FY21 stood at Rs 1,568 (+64% y/y/+194% q/q) which was at lifetime high for the company. This was on account of extremely strong pricing tailwinds in key markets of AP and Telangana (NSR +13.5% y/y) and superior cost optimization. Although freight cost is expected to inch up from current levels (+7‐10%) going ahead, it should be offset by softening energy costs. Absolute EBITDA came in at Rs 870 mn (+10.7% y/y). EBITDA margins stood at 33%, which was up 1010 bps y/y.
* Company expects to commission Indore IU (1 MTPA) and Orissa GU (1.5 MTPA) by Sep 2021
* Driven by 1. better than expected demand pick up in May‐ June 2020, 2. robust pricing scenario during Q1FY21 and 3. sublime execution on cost optimization, we upgrade our EBITDA estimates by 57%/11% for FY21E/FY22E respectively. Although company has achieved a sturdy EBITDA/te of Rs 1,568 for the quarter, we expect normalization going ahead by factoring in prices to taper off. Subsequently, we expect EBITDA/te to hover around Rs 951/Rs 693 for FY21E/FY22E respectively.
* Due to aforementioned reasons, we expect cash flows to be much better than earlier anticipated. We expect peak net debt of Rs 6.93 bn in FY22E (vs earlier estimate of Rs 7.86 bn) while peak net debt/EBITDA at 2.3x in FY22E (vs. earlier estimate of 3.7x).
* Currently SGC is trading at EV/EBITDA of ~6.1x and EV/te of $32 on FY22E. Assigning an EV/EBITDA multiple of 7x on FY22E, we have a target of Rs 607/share. We maintain our BUY rating on the stock.
Risk To Our Call
* In a scenario of second wave of Covid‐19 spread, demand and pricing outlook would be severely hampered.
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