MOSL: Morning India (1/December/17)-1. Sagar Cement (SPOTLIGHT); 2. EcoScope; 3. Sadbhav Engin.; 4. Indo Count Inds.; 5. Automobile (Sales Estimates)

​MOrning India (1/December/17): 1. Sagar Cement (SPOTLIGHT); 2. EcoScope; 3. Sadbhav Engin.; 4. Indo Count Inds.; 5. Automobile (Sales Estimates)

Today’s top research idea

Sagar Cement (SPOTLIGHT): Well placed to capture growth in AP/Telangana; Cost efficiencies and scaling of capacity to drive profits

• Sagar Cements (SGC) is well placed to capitalize on strong opportunities in the markets of AP/Telangana, where demand is likely to grow at 12-15% over the next two years after increasing by ~20% YoY over the past 12-15 months. This will be mainly led by the government's push toward infrastructure development and the creation of a new state capital of Amravati (Andhra Pradesh).
  
• SGC will increase capacity by ~35% over FY17-19 at a capex of INR2b (USD20/t) by way of debottlenecking and brownfield expansion, and will also diversify into east by ramp-up capacity in Bayyavaram.
  
• SGC is likely to improve its cost curve over the medium term, led by i) stabilization of WHRS, ii) commissioning of the 18MW thermal power unit and iii) lead distance reduction for the eastern markets due to capacity expansion in Vizag.
  
• SGC is attractively priced at EV/t of ~USD60-65 - a significant discount to replacement cost of USD110/t.