MOSL: Morning India (27/December/17)-1. Sanghi Industries (Ready for the next leap); 2. India Strategy (Contrarian Investing); 3. Bharat Forge (ART)
​MOrning India (27/December/17): 1. Sanghi Industries (Ready for the next leap); 2. India Strategy (Contrarian Investing); 3. Bharat Forge (ART)
Today’s top research idea
Sanghi Industries: Ready for the next leap; Diversification into new markets to bring in scale and margin expansion
- SIL, a Gujarat-based cement company, has capacity of 4.1mt and sells ~90% of volumes in Gujarat. It owns a 63MW captive power plant and a port.
- SIL is one of the lowest cost cement producers due to its quality limestone, locational advantage and strong integration across manufacturing value chain.
- We expect SIL's margin to expand by 8.4pp over FY17-20, led by (i) commissioning of a waste heat recovery system (WHRS), (ii) focusing on coastal mode of transportation by way of acquisition of ships and (iii) favorable revenue mix with higher proportion of Portland Pozzolana Cement (PPC).
- Increase in capacity to 8.2mt over next 30 months and diversification into new higher-priced markets should result in capacity-led re-rating.
- Expect PAT CAGR of 61% to INR2.63b over FY17-20; RoE to increase by 11pp to 16.8% in FY20, led by sharp uptick in profitability.
- We initiate coverage on SIL with Buy and TP of INR157 (23% upside; valuing its present capacity of 4.1mt at USD120 EV/tonne; incremental capacity of 4.1mt at USD78/t).
Piping hot news
RCom finalizes Rs39,000 crore debt resolution plan
- Reliance Communications Ltd (RCom) has finalized a debt resolution plan that involves the sale of its assets and does not require lenders and bond holders to write off their dues or convert it into equity. The company has also exited the strategic debt restructuring process (SDR), RCom said on Tuesday.
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