Sanghi Industries - Turning dreams into concrete reality

Sanghi Industries Limited is the flagship company of The Ravi Sanghi Group dealing in the
production and distribution of Cement under the Brand Name “Sanghi Cement”. Sanghi Cement was commissioned in 2002 with one of the world’s largest single stream Cement Plant located at Sanghipuram, in the Abdasa Taluka of Kutch District of Gujarat State. This plant is fully automatic with state-of-the-art technology from Fuller International, USA and having present capacity of 4.0 MTPA.

Positive factors

  1. Capacity expasion to double

  2. Save transportation coast to supply cement by using coastal route to dispatch cements from Kutch to Surat and Maharashtra region.

  3. Make in India, Smart city, affordable housing suppose to boost consumption of cement

  4. Sanghi Cements plans to set up floating facility at Kochi Port to reduce coast of shore base terminal. Once the project becomes operational, Kochi Port will be the first major port in the country to have a floating cement terminal,


CMP : 134
Promotor holding : 74.98
Pleadge shares: : 70.58

Disc : Added small quantity near 90 level. Waiting to add more after getting views from VP members

Proposed Expansion Plan.pdf (575.7 KB)
Edelweiss-SanghiIndustries.pdf (897.8 KB)
Venture-Sanghi Industries.pdf (1.3 MB)

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HI Kartik , Good writeup but as you are writing on this platform it would be good if you try to put out your thoughts (I am not interested on Edelweiss thoughts ) on valuations.

I believe most people are value picker rather than story picker here …

Anyways at Rs90 Stock is already trading at 16 times FY19 earnings as per Edelweiss DCF model, At their cost price Rs 62, it’s still not that cheap around 11 times FY19 earnins.

How much are you expecting to make on this ? I feel its fully priced. I would love to buy it at trailing 15 PE rather than FY19 15 PE.


Is the family feud over and settled completely? The four Sanghi brothers (one of whom is Ravi - MD of Sanghi Industries) were undergoing a separation couple of years back. I understand that this separation turned dirty… Anyone know the inside story and how it played out? Looking to see if management is a question mark.

Why aren’t these guys paying any taxes?

Great results from Sanghi. As compared to last Q2, Revenue up 38% , Profit up 190%. YOY profit up 5 times. Concall on 12th Feb at 11am should provide more details

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please note that sales change only 3 % and profit changes because reduction of excise duty , other income and tax reduction . there is no significant improvement in opreation perfomance. do u have insight on this

There cement sales were up by 16% YoY whereas clinker sales (exports) were down impacting reduced overall sales growth. They also had kiln shutdown for 20 days in Dec qtr. On the concall, management mentioned that volumes and prices are recovering from H1 lows. Please see the attached KR Choksey research report with target price of Rs 155

20180214_Sanghi-Industries-Limited_44_QuarterUpdate.pdf (1.5 MB)

Disclosure - invested after Q3 results in last 2 weeks. Forms 2% of my PF


Sanghi Industries Q4FY18 update : Overall Q4 seems to be NOT SO GOOD for Sanghi. There were 1)oneoffs in cost, 2)diffuculty in procurement of raw materials, 3)increase in cost of power fuel expenses and 4)shutdown of plant on account of technical reasons. This has definitely resulted in decrease in top line along with increase in cost which inturn decreased the margins. Further dilution of Equity has reduced the EPS dragging the EPS to 4.14 below estimates of 5+. This calls for the down gradation of SANGHI Industries.

Top line
• Volumes were down because of 15 days shutdown due to technical reasons. In percentgage term it was shut downed for 17% of the time in Q4FY18.
• But shut down period was utilised t for the upgradation of mill.
• Produced 6.50 lakh tonne cement in Q4FY18 including the export of 26,000 tonne. Out of this Mumbai contributed 66,000 tonne.
• Produced 5.31 lakh tonne clinker and faced a loss of 1.30 lakh tonne on account of plant shutdown.
• Geographic Mix for Q4FY18:
o Gujarat: 83%
o Maharashtra: 10%
o Others: 6%
• As the plant was shut down, Sanghi has bought the clinker from other sources for the purpose of continuation of business. Bought 21000 tonne of clinker at higher cost which inturn increased their cost significantly.
• Management has said the cement prices were on upside for FY18 and they have moved towards the industry average in terms of price realisation. This can be seen as improvement in their Brand value.

• EBIDTA per tonne can be seen as Rs. 617/tonne for Q4FY18.
• A slight change can be seen in terms of cement mix.
Ratio of OPC and PPC was 69% and 30% in FY18 against ratio of 65% and 35% in FY17. PPC being the high margin business, this proportion might have affected negatively on the margin to an extent.
• As the plant was shut down, Sanghi has bought the clinker from other sources for the purpose of continuation of business. Bought 21000 tonne of clinker at higher cost which inturn increased their cost significantly.
• Sanghi faced envioremental clearance issue in proecurement of lignite which was resulted in change of power and fuel mix. Currently the ratio is 43% coal and 57% lignite against 32% coal and 68% lignite previous year. Coal being on the higher cost side increased in coal ratio resulted in increase in power and fuel cost. Power cost increased from 73 paisa per Kcal to 88 paisa per Kcal which in turn has affected the margins further.
• Yearly fuel mix was 68% lignite, 21%coke & 11% petcoke and expecting it to be skewed towards coal in Q1FY19.
• Speaking about Fly ash used in production of cement, management said that availibility of fly ash will be constraint after shutdown of Adani power plant at Mundra. Currently management is looking for alternatives and expected to comeup with one in Q2FY19.
• Selling and distribution – Selling and distribution has seen oneoff of 11-12 crore which has decreased margins to an extent. Out of this, 8 crore was seen on account of increase in accountign provisions and 2 to 3 crore was seen as one off in shipping side for piloting and other one time cost. This are not expected to be repetative in nature. Net of this cost, Management expect the cost to reduce by 230 per tonne.
• Increse in freight cost was seen after the overloadign issues and increase in diesel cost by almost 20%. Out of total increase in freight cost 8-10% cost was passed on to transporter.
• Debentures carrying cost of 15.50% has been repaid and issued new debentures with the cost of 10.50% which was subscribed by reliance MF. Now new cost of borrwing stands at 10.50 to 11%.
• QIP was used to reduce current portion of the term loan, advance payment to suppliers and to buy instruments.
• Out of Rs. 515 crore term borrowing and 163 crore working capital borrowing, net borrowing stood at Rs. 278 crore after deducting the cash of Rs. 426 crores.
Future guidance
• Volume expected to reach to 3.2 MTPA in FY19 which indicated capacity utilisation of above 75%.
• Targeting vol of 3 to 3.5 tonne for mumbai region and already achieved 25k tonne vol per month for the month of April and May.
• No specific guidance on Gujarat sales was given. It was said to be linked to GDP growth of Gujarat. And expecting growth of 4 to 5%.
• Cement price realisation has increased by 5 to 6% in may and april 2018.
• Cost is expected to reduce significantly after increase in lignite proportion.
• Power and fuel cost is expected to reduce by 20 to 25% per tonne in Q1FY19.
• Targeting the EBIDTA margin of 850 PT for Q1FY19 against current 617 PT in Q4FY18.

Overall Q4 seems to be NOT SO GOOD for Sanghi. There were 1)oneoffs in cost, 2)diffuculty in procurement of raw materials, 3)increase in cost of power production and 4)shutdown of plant on account of technical reasons. This has definitely resulted in decrease in top line along with increase in cost which inturn decreased the margins. Further dilution of Equity has reduced the EPS dragging the EPS to 4.14 below estimates of 5+.

Disclaimer : New in the market. Please do your due diligence.

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Fixed an appointment with Mr. Sanjay Hatkar… any questions that I should be asking apart from below questions?

Q.1. Days sales outstanding has been increasing while, days payble oustanding was decreasing continuosly from last three years. Any specific reason behind this?

Q.2. Is this cycle of days sales outstanding and payble outstanding expected to continue for next few quarters/years? And if so, do you expect it to result in increase in working capital and short term debt further?

Q.3. Long term borrowing on books is 550 crores. Out of this borrowing of 550 crores how much is attributed towards the expansion? Apart from this long term borrowing and QIP issuance, how much extra long term borrowing you expect by FY20 for the current expansion project?

Q.4. How much % of WHRS system has been in place and is working out of total possible capacity? By when it is expected to be functioned with maximum capacity?

Q.5. Any update for fly ash replacement you were looking for? Is any replacement to flyash from new vendor expected to increase the cost of power and fuel ?

Q.6. How much reduction in cost per tonne for FY19 you are expecting after WHRS works to the full capacity?

Q.7. How much sales are you expecting in FY19 from Gujarat and Maharashtra region in terms of vol? Any specific comment for quarter 2 where volume growth contracts due to seasonality?

Q.8. After the refinancing of NCDs , the finance cost was expected to reduce to 10.5%. Why this was not reflected in the Q4FY18 results? Are you expecting it to reduce in Q1FY19?

Some of the questions i have in mind

  1. By when they will start paying Corp taxes
  2. They are installing a single 10k kiln as part of expansion. Why they have gone for it as most of the existing players have not been able to handle such a large kiln properly. And then how do they plan to sell such large quantity since there current capacity utilization is pretty low
  3. How come the lowest cost producer has a capacity utilization lower than the average capacity utilization of the region. Why can’t they undercut and sell more

Tracking not invested yet

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If you are looking at Sanghi (I’m invested from low levels), you should not really be worried by current or recent capacity utilization or income tax set-off amount available.

Here’s what you should like:

  1. You are buying when cement is not very popular. Analysts are mostly negative
  2. You feel cement cycle will turn (and are able to patiently wait for it)
  3. Sanghi’s nifty technology which allows it to tweak the mix of lignite and coal, depending on what is cheaper
  4. Sanghi’s proximity to fuel sources (GMDC’s operations for lignite and also fly-ash; close to port in case of imported coal)
  5. Very important - access to large limestone reserves of high quality and easily extractable (close to surface). This is a huge competitive advantage in the long term
  6. Low variable cost of production, driven by several of the above factors, plus WHR
  7. Sanghi owning a jetty, and now ships - to improve reach to (notably) the Mumbai market
  8. Management did not like being in CDR. They got an investment (debt) from Piramal to exit CDR early. This was high cost debt (15% interest). But a positive sign about management’s discomfort with being in CDR
  9. The same management, when the situation was better, has prepaid Piramal’s high cost debt after raising much lower cost debt (around 10.5% interest or so)
  10. Capacity expansion (nearly doubling). If you are worried about capacity utilization today, how will you feel when this capacity hits? Unless you are convinced that cement cycle will turn…In which case this is a big plus. Also, this additional capacity, before it becomes operational, will probably act as a drag on the numbers, frustrating those who don’t look beyond the surface

The biggest risk, I guess, is that the cement cycle does not turn for a long time. Then all the debt will begin to suck blood. It’s a risk I’m willing to take - considering the probability and quantum of the upside.


many cement companies mentioning that now upcycle for cement industry could begin… expecting good demand in near future… could be positive… but pressure continues from fuel and power cost side… coal and petcoke price increase further worsen by depreciating rupee… mix sentiments… with slightly positive bias…

Disclaimer: Invested.

Q1FY19 Concall highlights :

  • WHRS completed trials in May and June with the average capacity of 8MW.

  • Management said the quarterly demand was good and prices were also increased 3 to 4% YoY but has seen significant price reduction in second half of june.

  • Sales number stood at 680 thousand tonne with the Domestic sales of 643 thousand tonne.

  • Capacity utilisation stands at 66%.

  • Management expect this demand to grow for the year. Specially in H2FY19. Prices are also expected to increase.

  • Management commented that they are expecting to grow more than the industry average in Future.

  • Even though Demand was strong and prices were on uptick in Q1, sales decreased because of

    1. Availability of RM (fly ash) and fuel (Lignite) was constraint. Fly ash supply is the problem from last quarter as supply from Adani power reduced after the shutdown at Mundra.
    2. Supply for Lignite was reduced because of water logging in mines which has resulted in reduction of Sanghi quota by almost 75%.
    3. Eway bill mechanism has affected the nontraded sales mix in April and May as RTO became extremely vigilant on this. This has reduced the dispatch to far markets. Management said this is temporary and expecting regular supply of trucks in near future.
    4. Ship availability decreased because of monsoon. This was anticipated in targeted sales to Mumbai for an year.
      This all has affected non trade sales.
  • Margins were also affected because of

    1. onetime MTM Forex loss of Rs.3.22 crore.
    2. Change in the fuel mix. Lignite mix was 27% while coal was 73% (Against 83% lignite to 17% coal last year same quarter). Fuel cost gone up by 20%.
    3. Lignite and coal cost increase. Lignite cost was 83 paisa while coal cost was at 1.15 paise per Kcal.
    4. Significant reduction in cement price in second half of June.
      Additive cost gone up.
  • Sanghi is trying to replace the fly ash with pond ash and other additives. This may increase the cost of RM for Sanghi.

  • Increase in power and fuel cost was partially offset by commissioning of WHRS.

  • Pressure in power and fuel cost is expected to continue in Q2.

  • WHRS is expected to reduce the cost of Rs.80 crore per annum after it functions fully. In Q2, it may reduce the cost by Rs.14/15 crore.

  • Other cost and S&G cost reduced along with the finance cost.

  • Prices are again stable for July and August.

  • Finance cost was reduced and expected to sustain at current levels.

  • Expansion at kutch has started and major machine orders has been placed.

  • There is price difference of Rs.25 to 26 in Non trade and trade cement per bag.

  • Long term borrowing stands at Rs.575 crores and current cost of borrowing stands at 11 to 12%.

Just and analysis
Below is the analysis of all the cement companies who declared results for Q1FY19.
Source : Capital line.

  • YoY average industry growth (col R) stands at 12.31% where as Sanghi has reported the YoY degrowth of 2.26% (net of excise duty).
  • Industry has grown its top line QoQ -1.09%(col Q) where Sanghi reported the growth of 6.15%. This was also because of small base in Q4. QoQ high growth was because of shutdown of plant in January. Hence, this growth number is not a right thing to look at.
  • Sanghi has always been one of the highest in terms of cost of power and fuel as % of sales. Couloumn S,T and U shows that rate of increase in power and fuel is one of the highest for Sanghi. Its ok that they have high cost as % sales because they use only 11% petcoke in their fuel. But rate of increase shouldn’t have been that huge. Dependency on Lignite is one of the reason that it has increase at this rate. My concern is why don’t they use petcoke in their fuel? (There must be some other issue other than envirmental issue. Cause other cement companies are using it. And lets say that government will ban it, government is also saying that cement will be exception to ban. Then why dont they use petcoke? This could have resulted in cost savings.
  • RM cost remained on lower side but rate of increase as % of sales has been high. But this is due to fly ash which is not major concern.

Overall looks like Sanghi is performing below average of industry.

Disc: invested.

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Any news on Sanghi? Stock price has almost halved in couple of months.

Do Sanghi Indsutries have any correlation with crude oil? Do they hedge their currency risk if any…?
Is pet coke linked with crude oil? If yes, then it should benefit SNGI as they use very low petcoke compare to industry standard… any comments on this?

Most manufacturing industries are affected by crude prices, in varying degrees. If not as input / fuel, then in the distribution / logistics, as diesel becomes more expensive. From your phrasing, I guess you are most concerned in the “oil / petcoke as a fuel” element. Sanghi is one of the best placed in this respect. Its facility has the flexibility to change the mix of petcoke / coal / lignite, based on whatever makes most sense. It is one of the things I like about Sanghi.

Don’t get alarmed by share price volatility; look at the company’s performance and management’s intent.

The demand side can be tricky. Housing has clearly taken a hit, with land / home prices at unsustainable levels and facing a correction, accelerated by demonetization, GST, RERA et al. The housing sector is a big consumer of cement. Infra is not as large usually.

My thesis here though, is that this is a company that has management which is working hard, and hustles well. It has excellent limestone reserves. Flexibility in terms of fuel usage (which I talked about earlier). Close to port, and has own jetty and ships also now. Adding capacity. When the cycle turns, this will suddenly see a huge upside. Who knows, even things like the Mumbai-Ahmedabad bullet train could act as a trigger - will need lots of construction material.

When things are rosy, you will not get these prices. You have to look at the strengths of the company, see if it can survive tough times, and then grab it if it is cheap vis-a-vis the opportunity.

I have two disclosures:

  1. I am invested, and from low levels (lower than they are even with the recent fall)
  2. I also have a hedge, in that I am also invested in GMDC - a lignite miner (among other things), which counts Sanghi as one of its customers. If petcoke / coal / lignite prices rise, GMDC will benefit, and serve to offset the erosion of profit in Sanghi (this is assuming Sanghi is not able to pass on any price increase). I have entered GMDC also from low levels

Sanghi has almost 75% (Average) del qty for last two week and in the same week, it has moved from low of Rs. 52 to high of Rs. 64. It was trading below its book value of 56.

Key Takeaways from Cement Expo 2018

Management Stake
Cement Head, Dalmia Bharat
East Region Head, UltraTech
President, Grey Cement, JK Cement
Director, Marketing, Penna Cement
CEO, Vicat Cement
Country Head, FLSmidth
Country Head, ABB
Director, Energy & Production, ACC Ltd
Director, India Ratings
SVP, Orient Cement
Director, ThyssenKrupp
CEO, Beumer
Head, Cement Refractories, Calderys

From discussing the strategies for promoting cement consumption, to the challenges affecting regional demand & supply scenario and thereon raise the cement per capita consumption, to efforts in adopting the substitutes of costly/dirty pet coke/coal and thereon reducing the carbon footprint, to optimized usage of raw materials (limestone etc) which have been used over last 100 odd years, to the concept of green cement and finally discussing the factors that can drive prices from the current juncture. This conference has answered all our major queries.

What are the divergent trends in demand-mix?

Traditionally, Housing Sector comprises 60-65% of total demand while Infrastructure took the backseat with merely ~30% of demand. Of late, Roads & Infrastructure segment has gained huge traction with multiple projects being executed in Smart Cities, Airports, Metro Projects, Sea Ports & Affordable Housing Projects. Share of Bulk Cement has shot up to 20% from 5% (in FY2013). Ready Mix Concrete (RMC) demand has picked up significantly on the back of humongous demand auguring from metro projects, mass housing projects, high-rise residential projects.

How are we planning to tackle the freight related issues?

Freight Cost is a function of fuel price, lead distance, rail-road-sea connectivity. Share of railways has gone down from 52% (in FY2013) to now 27% mainly because of the feasibility and technical challenges like overloading of rolling stocks, tracks being occupied and lower availability of wagons to Cement Industry by prioritizing the appetite of Power Sector. As an antidote, companies have been trying to focus more on roads and increase the share of waterways (if possible). Of late, few companies like Penna/Vicat have procured vessels for transportation across coastal routes to neighbouring countries and as a result their freight cost has declined substantially.

What kind of new technologies are coming to reduce the packaging cost for companies?

In 2018, BOPP kind of technology has been launched which will reduce the cost/bag by 30% (Rs2.1-2.5). Demand of Paper Packaging Bags has gone up on the backdrop of environmental concerns. There is a price difference of Rs10 between base quality and premium quality.

Given the backdrop of limited limestone reserves, what type of strategy can conserve the same?

At this juncture, PPC comprises of 56% while OPC comprise of 34% and rest by PSC. Limestone Reserves will exhaust in next 45-50 yrs. Henceforth, few State Govts are promoting the use of PPC/PSC related cement units which possess following advantages:

  1. PPC/PSC cuts down Co2 emissions
  2. Reduce Global Warming
  3. Sustainable Usage of Limestone Reserves
    Limestone Calcined Clay (LCC) has emerged as the classic substitute of Limestone wherein the former helps in reducing environmental pollution. Director of ACC was of the view that Govt should premanently ban the usage of OPC especially in building dams, bridges, roads & affordable construction in order to save limestone and curb pollution levels.

As per the BSI Standards, what are the updated max usage criteria for raw materials?

Fly Ash – 35%
Slag – 65%
Pozzolana – 35%
Lime – 25%
Calcined Clay – 20%

Companies were of the view that the discussions for modifying the criteria is round the corners and will be promulgated in a couple of quarters. Excess blending can turn as a positive for the Cement companies that are located in the vicinity of the power and steel plants.

Considering the volatile price of dirty pet coke, what strategy can help the cement companies to adopt alternative of pet coke which will be less polluting and stable priced for the cement players?

Using 100% biomass (Sewage Sludge, Municipal Waste) is the only solution to tackle the problem of pet coke. Few State Govts like Maharashtra etc have been vying to dispose Municipal Waste into Cement Kilns and have achieved the same in many districts. To substantiate the same, ACC’s plant at Wadi is disposing 600 tns of waste per day since almost last 8 months.

What are the new technologies that can help in reducing power consumption?

Of late, Vertical Roller Mills (VRM) is in demand for the new expansions either organically or by way of debottlenecking. VRM is replacing Conventional Ball Mills and thereon helps in saving power upto 11-14 units/tn and also increases the output efficiency. In Cost Comparison, VRM is almost ~20% costlier than Conventional Mills.

What are the expectations of Demand Growth & Pricing Discipline in next 2-3 years?

While many players who attended the conference were of the view that FY19E demand will grow by 7-8%, they believe that Demand is expected to outpace GDP growth, going forward. Subsequently, Per Capita Cement Consumption will inch up to 300 kg by FY21E. Of late, pricing discipline is a result of joint effort by both small cap and large cap players and it’s bound to increase amid the busy construction season which will start from Jan’19 onwards. As an alternative, cement companies have been trying to increase the share of their premium category.


Sanghi Q3FY19 results out…

Rupees in Lakhs

% of Sales