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AnandRathi
Sanghi Industries (Buy)
CMP: ₹71.15
Target: ₹80
Key takeaways: a) Backed by healthy demand and a better trade mix, Q4FY19 realisations rose 3 per cent y-o-y to ₹3,906/tonne and volumes jumped 5.6 per cent y/y to 0.71m tons. With its strong ongoing government-driven infrastructure projects and a favourable pricing scenario, we expect a 16 per cent revenue CAGR over FY19-21, with an 8 per cent volume CAGR.
b) Softening of pet coke and diesel prices, savings from the WHR plant, the continuing focus on reducing logistics costs and more trade sales have enhanced operational efficiencies. We expect an ₹853 EBITDA/ ton by FY21, with a 14 per cent CAGR over FY19-21.
c) Management said the ongoing expansions are on track. The clinker plant is expected to be commissioned by March 2020. The grinding units (2 million tonnes in Kutch and 2 million in Surat) are also in process and are expected to be commissioned by June 2020. FY20 estimated capex is ₹650 crore, with maintenance capex of less than ₹50 crore.
Valuations: Strong demand with expected better pricing in its key region, and cost-optimisation measures would continue to drive Sanghi’s EBITDA/ton. The expansions in high-growth markets are on track, which would further improve its overall performance.
Risks: Lignite availability, rising costs.
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