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2019-08-20 12:10:49

Buy Sanghi Industries Ltd. at a price target of Rs 80.0 .


Updated: Aug 20, 2019, 03.12 PM IST

Anand Rathi maintains a buy on Sanghi Industries with a target price of Rs 80 for a superior performance despite subdued demand. Softer input prices and cost rationalisation helped Sanghi Industries perfor well. Sanghi Industries stock fell 0.40 to Rs 55.90 at a time the Sensex was down 96.93 points to 37,305.56.Company FinancialsSubdued demand growth, labour and water shortages and the liquidity crisis pulled down its Gujarat market 11.5% y/y; hence, domestic volumes fell 12% to 0.566m tons. Volumes of cement sold, of clinker exports and of RMC sales, together rose a mere 1% y/y leading to overall revenue coming flat y/y at Rs 2.7bn. Management says prices would be stable and demand improve, post-Q3. The brokerage expects a 12% revenue CAGR over FY19-21, with a 7% volume CAGR.A better blended ratio, softer coal/ diesel prices, more bulk cement dispatches, the axle-load policy and various operating efficiencies offset the rise in other expenditure (high maintenance cost), leading to EBITDA/ton shooting up 50% y/y to Rs 956 (Rs 638 a year ago). We expect an Rs 862 EBITDA/ton by FY21, at a 14% CAGR over FY19-21.Investment rationaleWith elections over and a good monsoon, demand is expected to rise in its key market. Expanding capacities, WHR savings and better operating performance would further help the company. Sanghi management said the ongoing expansions are on track except the Surat grinding unit, now expected to commence by Q3 FY21. It said debt would peak at Rs 12bn in FY20, which would keep interest cost high. Of the `13bn capex, till 31st June 2019 it had spent Rs 8bn. Demand reviving, the expected better pricing in its key region and cost-optimisation steps would continue to drive Sanghi?s EBITDA/ton. The expansions in high-growth markets are on track, which would further improve its overall performance. The brokerage arrived at a target of Rs 80, based on 11x FY21e EV/EBITDA. The implied valuation of the cement business is an EV/ton of $56 on FY21e.Risks are lignite availability and rising costs.Also Read

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