Sanghi Industries Ltd - KRChoksey

Sanghi Industries Ltd

RESULT UPDATE

13th November, 2017 14th April2017

India Equity Institutional Research II

Result Update - Q2FY18

Sanghi Industries Ltd.

II 13th November, 2017

Page 2

Robust operating margins despite challenging macros !

CMP

Target

Potential Upside

Market Cap (INR mn)

Recommendation

Sector

INR 118

INR 134

13.8%

25,793

ACCUMULATE

Cement

Result highlights

• Net sales stood at INR 2056 mn (est. of INR 2346 mn) which was flattish on y-o-y basis and down 28.5% q-o-q. Total sales volumes stood at 0.478 MT as against our expectations of 0.54 MT; which was down by 16.29% y-o-y and 28.12% q-o-q. • EBIDTA stood at INR 467 mn which was flattish on y-o-y basis and down 29.3% q-o-q and EBIDTA margin stood at 22.7% as against our expectations of 23.5%. EBITDA/ton surged to INR 977 as against INR 826 in Q2FY17 primarily on account of sharp pick up in realizations. • PAT stood at INR 109 mn which was up by 28.5% y-o-y and down 65.4% q-o-q while PAT Margin stood at 5.3%. Net profit was primarily above our estimates of INR 84 mn due to no tax outgo in the current quarter. MARKET DATA

Volume growth below estimates:

Shares outs (mn)

220

EquityCap (INR mn)

In Q2FY18, Sanghi Industries Ltd (SNGI) reported cement sales volumes of 0.478 MT (est. of 0.54 MT) which was down by 16.29% y-o-y and 28.12% q-o-q. Consequently, company witnessed a volume de-growth of 11.4% y-o-y during H1FY18. Demand in the western region was significantly impacted due to adverse rainfalls and flooding in few pockets of Gujarat. Further, during the quarter, the company commissioned two new ships with successful trial runs which will be used to dispatch higher volumes in fast growing Mumbai region. Going ahead, company expects demand to pick up in the West primarily on account of pick up in road and irrigation projects coupled with affordable housing projects.

2200

Mkt Cap (INR mn)

25793

52 Wk H/L (INR)

137/46

Volume Avg (3m K)

1542.5

Face Value (INR)

10

Bloomberg Code

SNGI IN

Owing to significant de-growth in volumes during H1FY18, we downgrade our FY18E/FY19E volume estimate for SNGI by 7.7%/7.2% respectively; projecting a 9.48% volume CAGR from 2.9 MT to 3.48 MT over FY17-FY19E. However, healthy realizations should drive revenue growth by 22.8% over the same period from INR 9975 mn to INR 15052 mn.

SHARE PRICE PERFORMANCE

Sturdy realizations drive EBITDA margins: 210

EBITDA during the quarter for SNGI was flattish on y-o-y basis scaling to INR 467 mn with EBITDA/ton of INR 977. EBITDA/ton spiked by 18.3% y-o-y primarily owing to increase in net realizations by 18.65% y-o-y. Consequently, net plant realizations grew by 17.9% y-o-y. Going ahead, we expect EBITDA/ton to remain steady and stand at INR 991 by FY19 on account of a.) commissioning of 13 MW waste heat recovery system, b.) healthy realizations, and c.) increase in dispatches to Mumbai market resulting into higher operating leverage.

160 110

Sensex

Sanghi Inds

MARKET INFO SENSEX

33034

NIFTY

10225

Nov-17

May-17

Nov-16

May-16

Nov-15

May-15

Nov-14

60

Consequently, we expect EBITDA margins to surge from 19.8% to 22.9% over FY17-FY19 and factor in 31.86% CAGR in EBITDA over the same period from INR 1982 mn to INR 3445.8 mn. Valuation and Outlook: Going ahead, we factor in top-line/EBITDA growth of 22.8%/31.8% over FY17-FY19E. The company is confident of achieving financial closure for its capex plan by March-2018 post which it will commission additional capacity of 4 MTPA within 24 months. With an expected net debt of INR 7245 mn by FY19E, the company trades at an EV/ton of ~$81 and EV/EBITDA of 9.63x. We believe SNGI should fetch premium valuations as compared to its historic valuations (average EV/ton of ~$70) on account of i.) higher revenue visibility, ii.) change in market mix, iii.) enhancement in operating efficiencies, iv.) superior brand creation, and v) surge in return ratios. We value the company at an EV/ton of $90 on FY19E and arrive at a target price of INR 134/share translating into an upside of 13.8% from CMP of INR 118/share. We have an ACCUMULATE rating on the stock.

SHARE HOLDING PATTERN (%) Particulars

Sep 17

Jun 17

Mar 17

74.98

74.94

74.98

FIIs

0.16

0.16

0.16

DIIs

4.07

3.56

5.02

20.79

21.34

19.85

100

100

100

Promoters

Others Total

ANALYST Vaibhav Chowdhry, [email protected], +91-22-6696 5571 Kunal Shah, [email protected], +91-22-6696 5413

22.8%

31.9%

Revenue CAGR between FY 17 and FY 19E

EBITDA CAGR between FY 17 and FY 19E

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com




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Sanghi Industries Ltd. KEY FINANCIALS

FY16

FY17

FY18E

FY19E

Net sales

7767.40

9975.30

12911.99

15051.95

EBITDA

1407.70

1982.00

2940.14

3445.87

APAT

619.20

631.50

990.16

1253.94

AEPS

2.81

2.87

4.50

5.70

P/E (x)

21.33

23.85

26.21

20.69

EV/EBITDA (x)

13.70

10.63

10.86

9.63

Particulars (INR mn)

Source: Company, KRChoksey Research

Q2FY18 Result Snapshot Particulars (mn)

Q2FY18

Q1FY18

Q2FY17

q-o-q

y-o-y

Net sales

2056

2875

2072

-28.5%

-0.8%

Total Expenditure

1589

2215

1601

-28.3%

-0.7%

Cost of Raw Materials

101

100

155

1.1%

-34.8%

Employee Cost

136

123

130

10.5%

4.4%

Power and Fuel Costs

458

693

388

-33.9%

18.1%

Transportation costs

599

943

594

-36.5%

0.8%

Other expenses

295

357

334

-17.2%

-11.5%

PBIDT (Excl OI)

467

660

471

-29.3%

-1.0%

EBITDA Margins (%)

22.7%

23.0%

22.7%

-26bps

-4bps

Depreciation

180

178

184

1.0%

-1.9%

EBIT before Exceptional Item

287

482

288

-40.5%

-0.3%

Exceptional Items

0

0

0

-

-

Other Income

11

21

6

-45.7%

105.8%

EBIT

298

503

293

-40.7%

1.7%

Interest

189

187

182

0.8%

3.7%

EBT

109

316

111

-65.4%

-1.7%

Tax

0

0

26

-

-

PAT

109

316

85

-65.4%

28.5%

PAT Margin (%)

5.3%

11.0%

4.1%

-566bps

121bps

EPS

0.50

1.44

0.39

-65.4%

28.5%


Key takeaways from conference call: • Demand in Western region witnessed sluggishness on account of adverse rainfalls and flooding in few pockets of Gujarat and Rajasthan. Consequently, demand de-grew by 6% y-o-y in Gujarat during H1FY18. However, there has been demand recovery in October to the tune of 4% y-o-y owing to pick up in irrigation and road projects coupled with affordable housing programme. During Q2FY18, company derived 93% of its volumes from Gujarat while the rest from Rajasthan, Maharashtra and Kerala. OPC constituted around 60% of sales while the rest being blended cement. • Lignite accounts for 75% of the fuel mix while coal accounts for 25%. Company witnessed drop in lignite prices from 80 paisa/kcal to 73 paisa/kcal on sequential quarter basis. Further, WHRS for the company should be commissioned by Dec-2017. •The management expects financial closure for capex requirement by end of March 2018 after which capacity addition should be commenced. • With receding of monsoons, higher institutional demand, smooth implementation of GST and faster execution of Government infrastructure projects, the management expects Gujarat to clock a volume growth of 5-7% during FY18. ANALYST Vaibhav Chowdhry, [email protected], +91-22-6696 5571 Kunal Shah, [email protected], +91-22-6696 5413






Page 4

Sanghi Industries Ltd. KEY FINANCIALS: Profit & Loss (INR mn) Net Sales COGS Employee Expenses Power and fuel Transportation cost Other Expenses EBITDA D&A Other income EBIT Interest Expense PBT Tax Effective tax rate Adjusted PAT before exceptional items Exceptional items Reported PAT

FY16 7767.40 523.9 378 1604.5 2575.5 1277.8 1407.7 540.5 28.2 895.4 272.3 623.1 3.9 0.63% 619.2 603.9 15.30

FY17 9975.30 710.40 525.30 2310.30 3333.20 1114.10 1982.00 730.60 22.40 1273.80 642.30 631.50 0.00 0.00% 631.50 0.00 631.50

FY18E 12911.99 816.96 604.10 2817.88 4228.03 1504.89 2940.14 832.28 30.00 2137.86 660.00 1477.86 487.69 33.00% 990.16 0.00 990.16

FY19E 15051.95 939.50 694.71 3372.34 4845.22 1754.31 3445.87 903.81 30.00 2572.06 700.51 1871.55 617.61 33.00% 1253.94 0.00 1253.94

FY16 2199.80 8310.30 10510.10 6080.50 16892 15606.80 0.00 1384.50 184.40 1439.60 2.50 3817.50 3963.70 16892

FY17 2199.80 8940.00 11139.80 6000.00 18515 16190.00 0.00 1865.80 239.40 1421.30 1.70 3881.00 3419.30 18515

FY18E 2199.80 9930.16 12129.96 6368.30 20132 17189.72 0.00 2350.16 314.13 1633.92 390.56 4828.95 3749.78 20132

FY19E 2199.80 11184.10 13383.90 7868.30 23131 20035.91 0.00 2573.98 366.20 1879.01 622.88 5337.16 4105.16 23131

FY16 619.20 540.50 -14.40 1424.20 -463.80 -1235.20 1875.50 0.00 -189.60 -0.60 3.00 827.90 830.30

FY17 631.50 730.60 -1217.80 760.00 -752.20 -78.70 20.70 0.00 -682.20 -0.90 2.40 0.00 1.50

FY18E 990.16 832.28 -101.59 2380.86 -1832.00 -1832.00 500.00 0.00 -160.00 388.86 1.70 0.00 390.56

FY19E 1253.94 903.81 324.58 3182.84 -3750.00 -3750.00 1500.00 0.00 799.49 232.32 390.56 0.00 622.88


Balance Sheet (INR mn) Equity Share Capital Reserves Net worth Total loans Capital Employed Net block Current Investments Inventories Sundry debtors Sundry creditors Cash and bank Total Current assets Total Current liabilities Capital Deployed Source: Company, KRChoksey Research

Cash Flow (INR mn) PAT Depreciation & Amortization (Incr)/Decr in Working Capital Cash Flow from Operating (Incr)/ Decr in Gross PP&E Cash Flow from Investing (Decr)/Incr in Debt Dividend Cash Flow from Financing Incr/(Decr) in Balance Sheet Cash Cash at the Start of the Year Others Cash at the End of the Year Source: Company, KRChoksey Research







Page 5

Sanghi Industries Ltd. Operating metrics (in INR)

FY16

FY17

FY18E

FY19E

Realization/ton

3714.55

3439.76

4318.39

4330.63

COGS cost/ton

250.67

244.97

273.23

270.31

Employee cost/ton

180.86

181.14

202.04

199.88

Power and fuel cost/ton

767.70

796.66

942.43

970.26

Transportation and Handling cost/ton

1232.30

1149.38

1414.06

1394.03

Other Expenses/ton

611.39

384.17

503.31

504.73

EBITDA/ton

671.63

683.45

983.32

991.42

FY16

FY17

FY18E

FY19E

671.63

683.45

983.32

991.42

2.09

2.90

2.99

3.48

Total Sales

10.16%

-3.28%

30.05%

16.57%

EBITDA

19.25%

5.60%

48.34%

17.20%

169.89%

-23.51%

56.80%

26.64%

EBITDA Margin

18.13%

19.87%

22.77%

22.89%

NPM

7.98%

6.33%

7.67%

8.33%

ROE

5.89%

5.67%

8.16%

9.37%

ROCE

5.30%

6.88%

10.62%

11.12%

EPS

2.81

2.87

4.50

5.70

BPS

47.75

50.66

55.16

60.86

P/E (x)

21.33

23.85

26.21

20.69

P/BV (x)

1.26

1.35

2.14

1.94

EV/EBITDA (x)

13.70

10.63

10.86

9.63

EV/Ton ($)

70.20

76.67

116.22

81.22

Net Debt/EBITDA

4.32

3.03

2.03

2.10

Net Debt/Equity

0.58

0.54

0.49

0.54

Interest Coverage

3.29

1.98

3.24

3.67


Ratio Analysis (Consolidated) EBITDA/ton Volume (mn tons) Growth (%)

PAT Profitability (%)

Return ratios

Per share data

Valuations (x)








Page 6

Sanghi Industries Ltd. Sanghi Industries Ltd.

Rating Legend

Date

CMP (INR)

TP (INR)

Recommendation

Our Rating

Upside

13-Nov-17

118

134

ACCUMULATE

Buy

More than 15%

10-Aug-17

84

115

BUY

Accumulate

5% – 15%

12-Jun-17

82

115

BUY

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than – 5%

ANALYST CERTIFICATION: We, Vaibhav Chowdhry (B.Com, MBA), research analyst and Kunal Shah (BE), Senior research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. 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It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst and Kunal Shah (BE), Senior research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst and Kunal Shah (BE), Senior research associate, do not serve as an officer, director or employee of the companies mentioned in the report. 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