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Motilal Oswal
Sanghi Ind (Buy)
CMP: ₹138.35
Target: ₹157
Sanghi Industries Ltd (SIL), a Gujarat-based cement company, has capacity of 4.1mt and sells about 90 per cent of volumes in Gujarat. It owns a 63-MW captive power plant and a port. SIL is one of the lowest cost cement producers due to its quality limestone, locational advantage and strong integration across manufacturing value chain.
Key takeaways: a) We expect SIL’s margin to expand by 8.4 pp over FY17-20, led by i) commissioning of a waste heat recovery system (WHRS); ii) focussing on coastal mode of transportation by way of acquisition of ships; and iii) favourable revenue mix with higher proportion of Portland Pozzolana Cement (PPC).
Increase in capacity to 8.2 mt over next 30 months and diversification into new higher-priced markets should result in capacity-led re-rating.
Expect PAT CAGR of 61 per cent to ₹263 crore over FY17-20; RoE to increase by 11 pp to 16.8 per cent in FY20, led by sharp uptick in profitability.
We initiate coverage on SIL with Buy and target price of ₹157 (23 per cent upside; valuing its present capacity of 4.1 mt at $120 EV/tonne; incremental capacity of 4.1 mt at $78/t).
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