MOSL: SANGHI INDUSTRIES (Buy)-Healthy realizations support margins amid volumes pressure
SANGHI INDUSTRIES: Healthy realizations support margins amid volumes pressure
(SNGI IN, Mkt Cap USD0.2b, CMP INR56, TP INR80, 44% Upside, Buy)
- Volumes decline, but realizations healthy…: Volumes declined 12% YoY to 0.6mt in 1QFY20 due to demand pressure in Gujarat (-11% YoY). However, realizations were up 13% YoY at INR4,562/t, resulting in revenue of INR2.7b (flat YoY; our estimate: INR2.6b).
- …driving an improvement in margins: Unitary cost increased 2% YoY to INR3,469/t, as savings in freight and power & fuel cost were offset by higher other expenses. However, strong realizations led to a 71% YoY (+68% QoQ) increase in EBITDA/t to INR1,093, with EBITDA at INR657m (+51% YoY; our estimate: INR482). PAT rose 93% YoY to INR384m (our estimate: INR233m).
- Management commentary: (1) Demand in Gujarat declined 11% YoY amid elections due to shortage of labor and slowdown in government spending. The state also faced liquidity issues and water shortage in the quarter. (2) SNGI expects flattish demand in 2QFY20 due to seasonality but a pick-up post monsoon. (3) Gujarat constituted 86% of sales mix, with remaining 14% coming from Maharashtra, Rajasthan and Kerala. (4) Freight cost per ton declined 4% YoY due to lower diesel prices and benefits of axle load norms.
- Valuation view: SNGI targets to increase its cement grinding capacity from 4.1mt now to 8.2mt by FY21 by adding one more line of clinker unit at its existing location as well as split grinding units of 2mt each in Kutch and Surat. The diversification into the newer markets will not only provide scale but also improve profitability. We expect the margin to expand ~6pp over FY19-21. We value the stock at EV/tonne of USD50 on FY21 capacity to arrive at a target price of INR80. Buy.
Sanghi Industries Limited is an India-based company engaged in the manufacturing and sale of cement and clinker. The Company manufactures and markets cement and cement products in domestic and export markets. It offers products, including Ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC). The Company offers cement under the brand name Sanghi Cement. The Company produces 53 Grade OPC and PPC Cement. It provides Shakti Rath service, which is a mobile concrete testing laboratory having all the necessary equipment and facilities required for onsite concrete testing. The Company operates over 40 Shakti Raths in Gujarat. The Company has established approximately 45 consumer care centers at the cities and towns of Gujarat, Rajasthan and Kerala. The Company's manufacturing facilities are located at Sanghipuram, Abdasa taluka of Kutch district in Gujarat. Its manufacturing plant has production capacity of approximately 4.1 million tons cement per annum.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.