Q4FY19 – Result Update May 22, 2019 Sanghi Industries Downside Scenario Current Price Price Target 75 18.9% Upside Scenario STRONG BUY 63 Q4FY19 Result Update Strong revenue growth due to strong volumes and stable realizations The company posted a revenue of INR 276 crore for the quarter, up by 8.8% y-o-y & 3.8% q-o-q due to sharp increase in volumes led by flat realization. Total sales volume for the quarter stood at 0.675 mt up by ~8.9% y-o-y, driven by the demand growth in its key markets which stood at 7-8%. Management expects volume’s to be around 3-3.2 mt by FY20E led by strong demand from Mumbai and south gujarat markets. Maharashtra recorded volume growth of 80% in Q4FY19 and management expects this to be the key driver in future volumes. EBITDA/Ton grew by 2.3% y-o-y, below estimates owing to cost escalations EBITDA/Ton for the quarter stood at INR 681, thereby recording growth of 2.3% y-o-y & 95.3% q-o-q in Q4FY19. Higher raw material cost (up by 53.9% y-o-y to INR 397/ton), as well as freight cost (up by 18.4% y-o-y to INR 159/ton). The company is stocking up coal, due to the unavailability of lignite, leading to a change in the fuel mix. The fuel mix as on FY19 is 76% imported coal and management expects it to be at the same levels going ahead. Also, the cost differential between lignite and coal is now down to about INR 0.05-0.10 paise/Kcal due to which coal seems to be a good option as compared to lignite. The current coal inventory is of 4 months as on FY19. Estimated capex is on track The company has completed 70% of civil work for the capacity expansion to 8.1mt. The new capacity addition is expected to be commissioned by Q1FY21. The existing capacity is operating at 65% utilization levels, post expansion management has guided that new capacity will run at 40% utilization levels. We believe that the new capacity will not be able to run at management guided levels due to overcapacity situation in Gujarat which remains the key market and much more will be dependent on housing projects and government capex in FY21E. Valuations The company witnessed a good quarter, and continues to be one of the lowest variable-cost producers in the industry, due to its locational advantage (proximity to good quality marine limestone reserves) as well as captive thermal power plant of 63 MW. We expect the low availability of lignite is to be replaced with coal stock and expect savings to come from its CPP and WHRS plants. A higher proportion of PPC and slag cement in its sales mix, combined with the increased capacity (leading to a higher pricing power) will improve the realization. At a CMP of INR 63, the company trades at a EV/ton of 44.7 on FY21 earnings. However, we don’t forsee much benefits from expansion due to which we reduce our target price to INR 75 giving an upside of 18.9%. (i.e. valuing the stock at FY21E EV/Ton of $55/Ton, 11x FY21E EV/EBITDA) Market Data Industry Cement Sensex 38970 Nifty 11709 Bloomberg Code SNGI:IN Eq. Cap. (INR Crores) 251 Face Value (INR) 10 52-w H/L 50/104 Market Cap (INR Crores) 1557.5 Valuation Data FY19 FY20E FY21E P/E (x) 30.1 18.2 17.1 EV/EBITDA (x) 14.1 11.7 10.9 EV/Ton ($) 77.9 87.4 44.7 Sanghi Industries Ltd Vs SENSEX Mar’19 Dec’18 Mar’18 Promoters 65.71 65.71 65.72 FIIs 4.76 4.79 8.77 DIIs 12.38 9.39 9.30 Retail 17.15 20.11 16.21 100.0 100.0 100.0 Shareholding Pattern (INR Crores) FY17 FY18 FY19 FY20E FY21E Net Sales 997.5 1026.4 1105.8 1206.2 1302.7 Growth% 3% 8% 9% 8% EBITDA 198.2 215.8 154.0 213.9 232.1 Growth% 9% -29% 39% 8% Reported PAT 63.1 93.3 52.6 86.8 92.5 Growth% 48% -44% 65% 7% EPS (INR) 2.87 3.72 2.10 3.46 3.68 P/E (x) 23.9 18.0 30.1 18.2 17.1 EV/EBITDA (x) 10.5 9.2 14.1 11.7 10.9 EV/Ton ($) 76.0 75.4 77.9 87.4 44.7 * Read last page for disclaimer & rating rationale * Source: Company, NSPL Research Institutional Research HEAD OF RESEARCH Vaibhav Chowdhry Vaibhav.Chowdhry @ nalandasecurities.com NALANDA SECURITIES PRIVATE LIMITED 310-311 Hubtown Solaris, NS Phadke Marg, Opp Teli Gali, Andheri East, Mumbai 69 +91-22-6281-9649 | [email protected] | www.nalandasecurities.com ASSOCIATE Aditya Khetan aditya.khetan @ nalandasecurities.com 60 80 100 120 140 160 180 200 05-2016 08-2016 11-2016 02-2017 05-2017 08-2017 11-2017 02-2018 05-2018 08-2018 11-2018 02-2019 Sanghi Sensex
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May 22, 2019 Sanghi Industries - Nalanda Securities€¦ · e May 22, 2019 Sanghi Industries Downside Scenario Current Price Price Target 75 18.9% Upside STRONG BUY 63 Q4FY19 Result
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Q4
FY1
9 –
Re
sult
Up
dat
e
May 22, 2019
Sanghi IndustriesDownside
Scenario
Current
Price
Price
Target
7518.9%
Upside
Scenario
STRONG BUY
63Q4FY19 Result Update
Strong revenue growth due to strong volumes and stable realizationsThe company posted a revenue of INR 276 crore for the quarter, up by 8.8% y-o-y& 3.8% q-o-q due to sharp increase in volumes led by flat realization. Total salesvolume for the quarter stood at 0.675 mt up by ~8.9% y-o-y, driven by thedemand growth in its key markets which stood at 7-8%. Management expectsvolume’s to be around 3-3.2 mt by FY20E led by strong demand from Mumbaiand south gujarat markets. Maharashtra recorded volume growth of 80% inQ4FY19 and management expects this to be the key driver in future volumes.
EBITDA/Ton grew by 2.3% y-o-y, below estimates owing to cost escalationsEBITDA/Ton for the quarter stood at INR 681, thereby recording growth of 2.3%y-o-y & 95.3% q-o-q in Q4FY19. Higher raw material cost (up by 53.9% y-o-y toINR 397/ton), as well as freight cost (up by 18.4% y-o-y to INR 159/ton). Thecompany is stocking up coal, due to the unavailability of lignite, leading to achange in the fuel mix. The fuel mix as on FY19 is 76% imported coal andmanagement expects it to be at the same levels going ahead. Also, the costdifferential between lignite and coal is now down to about INR 0.05-0.10paise/Kcal due to which coal seems to be a good option as compared to lignite.The current coal inventory is of 4 months as on FY19.
Estimated capex is on trackThe company has completed 70% of civil work for the capacity expansion to8.1mt. The new capacity addition is expected to be commissioned by Q1FY21.The existing capacity is operating at 65% utilization levels, post expansionmanagement has guided that new capacity will run at 40% utilization levels. Webelieve that the new capacity will not be able to run at management guidedlevels due to overcapacity situation in Gujarat which remains the key market andmuch more will be dependent on housing projects and government capex inFY21E.
ValuationsThe company witnessed a good quarter, and continues to be one of the lowestvariable-cost producers in the industry, due to its locational advantage (proximityto good quality marine limestone reserves) as well as captive thermal powerplant of 63 MW. We expect the low availability of lignite is to be replaced withcoal stock and expect savings to come from its CPP and WHRS plants. A higherproportion of PPC and slag cement in its sales mix, combined with the increasedcapacity (leading to a higher pricing power) will improve the realization.At a CMP of INR 63, the company trades at a EV/ton of 44.7 on FY21 earnings.However, we don’t forsee much benefits from expansion due to which we reduceour target price to INR 75 giving an upside of 18.9%. (i.e. valuing the stock atFY21E EV/Ton of $55/Ton, 11x FY21E EV/EBITDA)
Market Data
Industry Cement
Sensex 38970
Nifty 11709
Bloomberg Code SNGI:IN
Eq. Cap. (INR Crores) 251
Face Value (INR) 10
52-w H/L 50/104
Market Cap (INR Crores) 1557.5
Valuation Data FY19 FY20E FY21E
P/E (x) 30.1 18.2 17.1
EV/EBITDA (x) 14.1 11.7 10.9
EV/Ton ($) 77.9 87.4 44.7
Sanghi Industries Ltd Vs SENSEX
Mar’19 Dec’18 Mar’18
Promoters 65.71 65.71 65.72
FIIs 4.76 4.79 8.77
DIIs 12.38 9.39 9.30
Retail 17.15 20.11 16.21
100.0 100.0 100.0
Shareholding Pattern
(INR Crores) FY17 FY18 FY19 FY20E FY21E
Net Sales 997.5 1026.4 1105.8 1206.2 1302.7
Growth% 3% 8% 9% 8%
EBITDA 198.2 215.8 154.0 213.9 232.1
Growth% 9% -29% 39% 8%
Reported PAT 63.1 93.3 52.6 86.8 92.5
Growth% 48% -44% 65% 7%
EPS (INR) 2.87 3.72 2.10 3.46 3.68
P/E (x) 23.9 18.0 30.1 18.2 17.1
EV/EBITDA (x) 10.5 9.2 14.1 11.7 10.9
EV/Ton ($) 76.0 75.4 77.9 87.4 44.7
* Read last page for disclaimer & rating rationale
*
Source: Company, NSPL Research
Institutional Research
HEAD OF RESEARCHVaibhav ChowdhryVaibhav.Chowdhry@ nalandasecurities.com
• The company’s net sales rose 8.8% y-o-y & 3.7% q-o-q to INR 276 crore in Q4FY19.• Raw material cost grew by 67.8% y-o-y & declined by 39.0% to INR 26.8 crore in Q4FY19.• Employee cost declined by 31.5% y-o-y & inclined by 21.6% q-o-q to INR 10.3 crore in Q4FY19.• EBITDA for the company grew by 11.6% y-o-y & 43.2% q-o-q to INR 46 crore with EBITDA margins at 16.7% in Q4FY19 as against
16.3% in Q4FY18 and 12.1% in Q3FY19.• EBITDA/Ton for the quarter stood at INR 681, thereby recording growth of 2.3% y-o-y & 95.3% q-o-q in Q4FY19.• The cement volumes grew by 8.9% y-o-y & and declined by 26.6% q-o-q to 0.675 mt in Q4FY19.• Reported PAT grew by 42.1% y-o-y & 513% q-o-q to INR 26.4 crore in Q4FY19. PAT margins stood at 9.6% in Q4FY19 as against
7.3% in Q4FY18 and 1.6% in Q3FY19.
(INR/Ton) Q4FY19 Q3FY19 Q4FY18 Y-o-Y Q-o-Q
Realization 4089 2892 4090 0.0% 41.4%
RM Cost 397 478 258 53.9% -17.0%
Employee Cost 153 92 244 -37.3% 65.2%
Power and Fuel 1040 746 1095 -5.0% 39.5%
Freight and Forwarding 159 117 134 18.4% 35.0%
Other Expenditure 1659 1110 1695 -2.1% 49.5%
Total Expenditure 3406 2542 3426 -0.6% 34.0%
EBITDA 681 349 666 2.3% 95.3%
Key Concall Highlights• The company reported 70% utilization in Q4FY19 and 65% in FY19 which is below the industry benchmark of 70-75% in FY19.• Blended cement stood at 36% in Q4FY19 as against 31% in Q4FY18 and 33% in Q3FY19.• Realization stood at 4089 per ton on sales volume of 0.625 mt, reporting flat growth y-o-y & 41.4% q-o-q in Q4FY19.• The coal mix is 6% imported coal and remaining is lignite. Dependency on more imported coal mix would gradually lead to
decline in power cost as lignite and coal prices have difference of mere 0.05-0.1 paise/Kcal.• Coal inventory of 4 months is piled up by the company due to which the inventory has shot up by 60.8% y-o-y to INR 237.3 crore
in FY19. Management expects the inventory to remain at the same or upper levels going ahead.• Sales volume breakup in Q4FY19 is 83% Gujarat and remaining 17% others including Maharashtra, kerala etc. Management
indicated Maharashtra sales volume grew by strong growth of 50%. We believe this is owing to strong housing projects kick inmetropolitan regions like Mumbai.
• On the expansion front the management sounded optimistic on completing the scheduled work on time and expects theexpansion to start at 40% utilization at start.
• Q1FY20 to report better pricing growth which remained subdued in Q4FY19, as INR 15-20/kg price increase has taken place inGujarat and expect the pricing to remain stable till Q1FY20 and gradual softening in Q2FY20 owing to monsoon season.
HEAD OF RESEARCHVaibhav ChowdhryVaibhav.Chowdhry@ nalandasecurities.com
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