The Adani Group decision to enter into a master supply agreement with Sanghi Industries at cost plus ten per cent has raised corporate governance issue among investors and cast a shadow on the interest of minority shareholder of the company.

Sanghi Industries had called for Extraordinary General Meeting on February 8 to ratify the MSA signed with its group company.

Shares of Sanghi Industries had dipped 10 per cent to ₹133 on Wednesday on the back of unfavourable supply agreement. Ambuja Cements recently acquired majority stake in Sanghi for ₹5,185 crore.

As per the MSA, Adani Group companies Ambuja Cement and ACC will procure 80 per cent of Sanghi Industries’ 6 million tonne per annum cement capacity at cash cost plus 10 per cent excluding depreciation in the financial year 2023-24 and 2024-25.

At the present cost structure of Sanghi Industries, an analyst said the cost plus 10 per cent supply agreement works out to an Ebitda of ₹360 per tonne while the industry commands an average Ebitda of ₹1,200 a tonne.

EBITDA outcome

Sanghi Industries is one of the lowest cost clinker producer with ample reserves and if its production is sold in the open market it can easily fetch an EBITDA of ₹1,200-₹1400 a tonne, he added.

JN Gupta, Managing Director, Stakeholders Empowerment Services (SES) said EBITDA for a company varies on multiple factors and any agreement for supply between two companies cannot be compared with that of industry standards.

Expecting that agreement with Sanghi to have the same terms that of Ambuja Cements and ACC is neither practical nor in interest of shareholders as it ignores differences in operations of two companies and will amount to transfer of resources from Ambuja Cements shareholder to Sanghi, he added.

In its opinion report, Shailesh Haribhakti & Associates said the proposed MSA coupled with the projected surge in production capacity utilisation from an average of 27-30 per cent to an impressive 70-80 per cent is expected to yield increased output, reduced unit costs, and overall resource optimisation.

By strategically addressing the historical negative EBITDA through well-structured related party transaction, Sanghi is positioning itself for a positive EBITDA outcome with synergy benefit fostering a higher revenues at reduced costs structure, said the report.

Further it said by entering into a transaction with the related party mitigates the risks associated with uncertainties in the open market, said Shailesh Haribhakti & Associates.

Ashutosh Murarka, Cement Analyst, Choice Broking said the company is looking to expand the market presence and capacity through this acquisition which is in line with their long term vision to reach 120 mtpa by 2028. Further, he said the acquisition strategy varies from business to business, he added.

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