Sanghi Industries - Turning dreams into concrete reality

ICRA revised outlook from stable to negative…

Sanghi Industries -R-14022019.pdf (246.9 KB)

Promoters have increased the shareholding.

Any new updates in Sanghi?

Please share if anyone following it

I am looking forward to invest.

Remarkable Q3 results beating my EBITDA estimates handsomely - i have entered this stock taking a medium term view.

The management is confident of reducing earnings volatility and improving supply chain efficiencies.

This could be a 2021 doubler in my opinion.

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Got interested with the company as they just completed an expansion project at Sanghipuram, Kutch. The expansion included 10000TPD clinker unit, 67 MW Thermal Power plant and a 2 MTPA cement grinding unit. The new unit commenced production in Febrary’21 behind schedule by a year due to covid related delay. With the new expansion project can the cement company post great results?The company has a price/book value of 0.78 and CWIP of 1262 cores as on Sept’21. Are we going to see the end of company’s production woes with the current expansion?

Poor past year performance
The company had a pretty poor FY’20, where sales went down significantly. The company faced severe production issues in the last FY. Company had to defer its annual maintenance to Q3 FY20 instead of seasonally weak Q2 due to heavy rainfall in its plant area. While the sale volume had improved in the initial part of Q4 FY2020, SIL undertook a second maintenance shutdown of its plant for 10-12 days in March 2020. Additionally, with the Covid-19 pandemic, the company’s plant was shut down since March 24, 2020, following the announcement of the Government’s national lockdown policy to control the virus spread Also Q4 ’20 was affected by lockdown. On the raw material cost front, The raw material cost per tonne of sale has increased by around 46% in FY-20 over FY-19. Due to production constraints, Company had to purchase clinker to maintain the sales in market. Hence, raw material cost increase includes around 1.16 lac tonne of external clinker purchased forming 31% of the cost. Company has captive power for its requirements. Power and fuel cost per tonne of sale marginally reduced by 1.6% in FY-20. The Company is importing coal at its own port with minimal inward freight. By blending higher quality coal with lignite, company is able to achieve improved consistency in production and better quality of clinker. The company can source lignite at competitive rates, given its proximity to GMDC Ltd.’s lignite mines.

Company’s locational as well as raw material advantages.

The company has its plant in Gujarat and 80- 85 % of the sales comes from Gujarat. The other two major states include Maharashtra and Kerala. SIL has an integrated cement production facility with easy access to high quality raw material, viz., limestone, at its captive mine about 3 km from its plant. Further, it has access to other raw materials like laterite, silica, clay and fly ash in the region with captive mines available for most of them. SIL has its own source of power with its 61.5-MW captive power plant (CPP) located about 10 km from the clinker plant and 2 km from the cement plant, adjacent to its captive jetty. The captive jetty allows SIL to directly import coal/pet coke for operating its CPP as well as for its cement operations. In terms of its fuel mix, it has the option to switch fuel source to lignite/imported coal/pet coke at both its CPP and clinker units, offering it the flexibility to control its energy costs depending on market conditions. The western India is traditionally a strong market for cement. Due to the captive jetty available the company is also exploring the possibility of export of clinker with the added capacity coming on stream. Company has also signed an agreement with Zuari for using its bulk terminal facility at Kochi port for packing its cement for usage in Kerala markets. Proximity to port can be considered an additional advantage for the company when it comes to export and reaching new market close to ports. SIL has also completed dredging activities at its jetty facility for enabling higher capacity ships/barges to voyage directly to the jetty.
Capacity Utilization

The company’s capacity utilization has been pretty poor (less than 50 %) in the past may quarters. Operational issues were one of the key factors, however, even during such dull quarters company was able to clock very good EBITDA/ ton close to 1000 due to good raw material management.

Debt

The company’s debt has moved from 771 crores in FY’19 to 1256 crores in FY’20 mainly due to the very large capex undertaken. Moreover the company has issues NCDs worth 305 crores for private placement on 23rd February for redemption of NCDs worth 256 crores issued in March’18. The NCDs carry a coupon interest of 14-16 %. In such a low interest scenario it’s not pleasant to see the company going for such high cost debt. The debt will be for a tenure of 6 years. The earlier debenture were at 10.5%.

To conclude it can be seen that the company has almost doubled its clinker capacity. The enhanced capacity has come on stream in Q421 when the country is seeing increased demand after covid unlocking, However the demand may have flattened with the 2nd wave. The company has advantages in the cost side due to its integrated nature of operations and proximity to raw material. The company has captive limestone mine, captive power plants etc. Also captive jetty will aid the company in imports of pet coke etc. and export of clinker as well. Digvijay cement has a similar market and had a revenue increase of 22 % in Q4’21 over Q3’21 with increased OPM margins. The capacity utilization along with debt reduction will be the key factors to watch out for.

Key risk:
The very high debt along with high cost of debt can be disastrous for the company if demand/ capacity utilization doesn’t pickup

Discl: Invested and biased, Not a recommendation

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Couple of big investors have picked up stakes during last quarter

@hitesh2710 - Do you still hold Sanghi?

Q3 - Concall Summary

  1. Massive increase in coal prices and slack in demand - key reasons behind margin compression
  2. Current capacity utilization is around 50% (2.5 MT). The ramp up to 5 MT capacity utilization is expected over next 2-3 years. Management do not want to reduce prices to capture market share
  3. Most of the Debt is term loan, will be re-paying debt subject to cash flow; No major capex planned over next year or so
  4. Clinker export became less competitive against other exporters in other countries, due to spike in coal prices
  5. Management is increasing the % of Lignite and alternate fuel compared to the % of Coal to mitigate increase in coal prices
  6. Company still lower cost cement producer and want maintain cost efficiency

Full Conference call link - Sanghi Industries Ltd Q3 FY22 Earnings Call - YouTube

Disc - Invested, Biased

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Why after huge capex, company is not able to generate revenue

Sub: Disclosure under Regulation 30 and other applicable provisions under
SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015, as amended (“SEBI (LODR) Regulations”).
This is to inform you that the board of directors of the Sanghi Industries Limited
(“Company”) met today (i.e., August 3, 2023) and inter alia approved the execution
of the share purchase agreement dated August 3, 2023 (“SPA”) amongst the (a)
Company, (b) certain members of the promoter/ promoter group of the Company
(whose names are set out in the Annexure, “Sellers”), and (c) Ambuja Cements
Limited (“Acquirer”). Pursuant to the SPA, the Acquirer proposes to acquire upto
14,65,78,491 equity shares of the Company (“Sale Shares”) representing 56.74 % of
the equity share capital of the Company, for a consideration of upto INR 114.22 per
Sale Shares (“Proposed Transaction”) subject to the terms and conditions mutually
agreed between the parties and recorded in the SPA. As a result of the Proposed
Transaction, the Acquirer will be required to make an open offer in accordance with
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SEBI
(SAST) Regulations”). Subsequent to the board approval, the Company has
executed the SPA.”

Open offer triggered…

Can some one pls update if there is any other open offer after recent Abuja’s 50% acquisition?

Any view on the company as open offer was at 120 and stock is currently available at sub 90 levels

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