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Initiating Coverage | 26 December 2017

Sector: Cement

Sanghi Industries

Expansion into
high-priced markets

Reserves in
proximity

Low cost s on te
cu ou
manufactoring Fo tal r
as
co

Owned ports

Ready for the next leap


Abhishek Ghosh-Research analyst (Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436
Pradnya Ganar-Research analyst (Pradnya.Ganar@motilaloswal.com); +91 22 3980 4322

Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Sanghi Industries

Contents: Sanghi Industries | Ready for the next leap


Summary ............................................................................................................. 3

Lowest-cost producer in commodity business ....................................................... 5

Efficient power & fuel cost curve .......................................................................... 8

Coastal transport mode provides distinctive advantage....................................... 11

Access to large limestone reserve – a major advantage ....................................... 15

Demand market for SIL is getting favorable ......................................................... 17

Play on multiple re-rating via doubling of capacity .............................................. 22

SWOT analysis .................................................................................................... 25

Bull & Bear case ................................................................................................. 26

Financials and Valuations ................................................................................... 27

26 December 2017 2
Initiating Coverage |Sanghi Industries
Sector: Cement

Sanghi Industries
BSE Sensex S&P CNX
33,940 10,493
CMP: INR127 TP: INR157(+23%) Buy

Ready for the next leap


Stock Info Diversification into new markets to bring in scale and margin expansion
Bloomberg SNGI IN
Equity Shares (m) 220 Sanghi Industries Limited (SIL) is a Gujarat-based cement company, with capacity of
52-Week Range (INR) 137 / 46 4.1mt. Around ~90% of its volumes are sold in Gujarat. An integrated cement unit, SIL
1, 6, 12 Rel. Per (%) 2/48/130 owns a 63MW captive power plant and a port. SIL is one of the lowest cost cement
M.Cap. (INR b) 27.9
M.Cap. (USD b) 0.4
producers due to its quality limestone, locational advantage and strong integration
Avg Val, INRm 80.0 across the manufacturing value chain (SIL’s cost/t of INR2,766 v/s industry average of
Free float (%) 25.0 INR3,603).
 SIL’s strength lies in its access to 1b tonne of quality marine limestone reserves,
Financial Snapshot (INR b)
which should allow it to sustainably add capacity over the next 15 years.
Y/E Mar 2018E 2019E 2020E
Net Sales 12.7 14.6 16.4  We expect SIL’s margins to expand by 8.4pp over FY17-20, led by its three-pronged
EBITDA 3.0 3.8 4.6 strategy: (i) commissioning of a waste heat recovery system (WHRS), (ii) focusing more
PAT 1.3 2.0 2.6 on the coastal mode of transportation by way of acquisition of ships and (iii) achieving a
EPS (INR) 5.8 8.9 12.0 favorable revenue mix with higher proportion of Portland Pozzolana Cement (PPC).
Gr. (%) 102.0 53.5 34.6
BV/Sh (INR) 56.4 65.3 77.3  In our view, SIL is a strong candidate for a re-rating, led by (i) expected increase in
RoE (%) 10.8 14.6 16.8 its capacity from 4.1mt now to 8.2mt over the next 30 months and (ii) anticipated
RoCE (%) 10.4 11.4 11.1 scale benefits led by diversification into new higher-priced markets.
P/E (x) 21.9 14.3 10.6  We expect EBITDA CAGR of 33% over FY17-20, with improved pricing and positive
P/BV (x) 2.3 1.9 1.6
operating leverage leading to 26% CAGR in EBITDA/t. This is likely to drive PAT
EV/EBITDA (x) 10.5 8.0 5.9
CAGR of 61% to INR2.63b over FY17-20. We expect RoE to increase by 11pp to
Shareholding pattern (%) 16.8% in FY20, led by a sharp uptick in profitability.
As On Sep-16 Jun-17 Sep-17  We initiate coverage on SIL with a Buy rating and a target price of INR157 (23%
Promoter 75.0 75.0 75.0 upside; valuing its present capacity of 4.1mt at USD120 EV/tonne; incremental
DII 5.9 3.6 4.1 capacity of 4.1mt likely to be added by FY20 at USD78/t at a 35% discount to
FII 0.4 0.2 0.2
Others 18.8 21.2 20.8
replacement cost of USD120/t).
FII Includes depository receipts Strong integration, access to limestone reserve are differentiators
Sanghi Industries  In our view, strong integration across the cement production value chain –
Ready for the Next Leap from access to limestone reserve to multi-fuel kiln to captive thermal power
plant to captive jetty for outward coastal movement of cement and inward
movement of imported input material – makes SIL one of the lowest-cost
cement producers in India, also providing it with a strong competitive edge in
terms of profitability.
 SIL enjoys access to 1b tonne of extremely good-quality marine limestone
reserve, which can support operations at 2x present capacity for over 100
years. Additionally, the limestone mines have deposits at surface, which can
be extracted by surface mining instead of the relatively expensive
conventional technique of blasting. This helps SIL significantly in terms of cost
Abhishek Ghosh
of mining.
+91 22 3980 5436
Abhishek.ghosh@motilaloswal.com Margin improvement led by cost initiatives and favorable revenue mix
Please click here for Video Link  SIL’s margins are likely to expand by 8.4pp over FY17-20, led by its cost-
control program, which encompasses installation of the 15MW WHRS and
acquisition of two ships. Around 20% of its power requirement will be low-
cost post the installation of the WHRS.

26 December 2017 3
Sanghi Industries

Stock Performance (1-year)  This is likely to result in savings of INR150-170m post stabilization. The other
initiative of acquiring two ships will likely lead to more use of the cost-efficient
coastal route for transportation. Additionally, SIL is likely to increase its
proportion of PPC from 35% now to ~50% over the next 18-24 months, for
which it has installed fly ash silo.

Capacity-led re-rating on the cards; diversification to bring in scale


 SIL targets to increase its cement grinding capacity from 4.1mt now to 8.2mt
over the next 30 months by adding one more line of clinker unit at its existing
location, as well as split grinding units of 2mt each in Kutch and Surat. The new
grinding units would be largely utilized to cater to the better-priced markets of
Mumbai and Kerala, which can be tapped by way of coastal movement – an
efficient mode of cement transportation.
 While diversification into the newer markets will provide scale, it will also result
in improved profitability. We also see SIL as a strong re-rating candidate, as the
expected increase in capacity over the next few years should help it achieve
significant scale benefits.

Valuation and view


 At CMP of INR127/share, SIL trades at EV/EBITDA of ~8.0/5.9x on FY19E/20E
earnings (adjusted for CWIP related to doubling of capacity). It trades at EV/t of
USD115/80 on FY19/20 capacity. We value SIL’s present capacity of 4.1mt at
EV/tonne of USD120 and proposed capacity expansion of 4.1mt at USD78/t
(35% discount to replacement cost of USD120/t) to capture the low capital cost
for incremental capex. Hence, we value its overall capacity of 8.1mt (with
additional debt of INR12b for additional capacity) at USD99/t. Incremental cost
of capacity addition is lower at USD45/t, as against the industry standard of
USD120/t, as the expansion is brownfield in nature and a significant amount of
capex has been incurred toward the ancillary set-up.
 We thus initiate coverage on SIL with a Buy rating and a target price of
INR157/share, implying upside of ~23% from the current levels.

Exhibit 1: Comparative Valuations


FY17 EV/ton (USD/t) EV/EBITDA (x)
Company
Capacity (mt) FY19E FY20E FY19E FY20E
Sanghi 4.1 115 80 8.0 5.9
Sagar Cement * 4.3 58 53 8.1 6.6
Heidelberg* 5.4 115 115 10.0 7.9
JK Lakshmi 10.9 77 72 9.7 7.8
Orient Cement 11.6 88 86 8.9 6.1
JK Cement 12.3 119 117 9.6 8.3
Birla Corporation 15.4 116 101 10.4 7.7
India Cement 16 77 73 7.8 6.5
Ramco Cements 17 172 162 13.6 10.6
Dalmia Cements 25 201 195 14.8 12.5
Source: Company, MOSL, *Bloomberg

26 December 2017 4
Sanghi Industries

Lowest-cost producer in commodity business


Locational advantage and integration across value chain make SIL one of
the lowest-cost producers in the country

 Availability of high-quality marine limestone by way of surface mining at close


proximity to the clinker unit has ensured lower raw material cost for the company
than industry average. Additionally, the recently installed conveyor belt for
transporting limestone is expected to bring in further cost savings, in our view.
 Multi-fuel kiln offers flexibility in terms of fuel cost, providing the company an edge
over competitors. Captive thermal plant of 63MW makes it self-reliant for power with
low cost. Availability of low-priced lignite at close proximity further increases
flexibility, reducing overall power & fuel cost.
 Besides this, the focus on coastal mode for cement transportation lowers effective
freight cost for the company. Infrastructure in the form of own captive port helps in
further reducing port charges and provides flexibility in handling in-bound (fuel) and
outbound cargo (clinker and cement).

Exhibit 2: SIL’s cement production cost has remained lower than industry average over the
years
Total cement production cost for MOSL Universe (INR/t)
Total cement production cost for Sanghi (INR/t)

3,293 3,421 3,606 3,685 3,601


3,000

3,412 3,714 3,018 3,311 2,924 2,766

FY12 FY13 FY14 FY15 FY16 FY17


Source: Company, MOSL

Exhibit 3: Even in FY17, SIL was at par with Shree in terms of being the lowest cost producer

Comparison of Sanghi's total production cost with peers (INR/t)


4,285 4,120
3,882 3,772 3,639 3,606
3,326 3,319 3,198 3,056
2,766 2,749

ACC ICEM JKCE UTCEM BCORP DBEL ACEM TRCL JKLC ORCMNT SIL SRCM
Source: Company, MOSL

26 December 2017 5
Sanghi Industries

Enjoys lowest RM cost curve in industry


 SIL is highly integrated across the value chain, with limestone reserve at close
proximity to the clinker unit (just ~3km away). The recent commissioning of the
conveyor belt for cement transportation is expected to further reduce freight
cost for limestone. Furthermore, the captive thermal power plant with capacity
of 63MW is just ~7km away from the clinker unit, which makes it self dependent
for power. The grinding unit is at close proximity of ~10km from the clinker unit,
which privides the crucial logistical advantage. The captive port meant for
inbound (fuel) and outbound (cement) cargo further ensures savings in port
charges.

Exhibit 4: Proximity to limestone reserve

Source: Company, MOSL

Exhibit 5: Limestone deposits in Kutch

Source: Company, MOSL

26 December 2017 6
Sanghi Industries

The company enjoys significant competitive edge in terms of lower RM cost, which
is derived from:
1) Limestone mine at close proximity to clinker unit
2) Availability of limestone by way of surface mining
3) Abundant availability of limestone at depth of ~30 metres, which reduces cost of
mining; peers have to go as deep as 70 meters to extract limestone of good
quality
4) Tie-up for flyash at a distance of 160km through UMPP at Mundra, which
provides freight cost advantages

Exhibit 6: SIL’s raw material cost has remained significantly lower than industry average
over the years

Raw material cost for MOSL universe (INR/t) Raw material cost for Sanghi (INR/t)

656 672 687 686


587
532

192 83 341 161 332 273

FY12 FY13 FY14 FY15 FY16 FY17


Source: Company, MOSL

Exhibit 7: Comparison of SIL’s raw material cost with peers


FY17 Raw material cost/t for Sanghi and MOSL cement universe (INR/t)

957
879 841 822 822 802 787
708

493
384
305 273

JKLC JKCE DBEL BCORP TRCL UTCEM ICEM ACC ORCMNT ACEM SRCM SIL
Source: Company, MOSL

 Limestone reserve is at a distance of ~3km from the clinker unit, which provides
a huge freight cost advantage to SIL. Additionally, the company has built a
conveyor belt (at a cost of INR150m) to transport limestone from the mine to
the clinker unit. This is expected to ensure savings of INR10-15/t in the form of
lower freight cost.
 As limestone is available at the surface of the mine, it is extracted by way of
surface mining, which is far cheaper than conventional methods of mining
(involve procedures like blasting). Notably, limestone is extracted at a depth of
30 meters, as against conventional depth of 70 meters.
 Other additives like laterite, clay and silica (which form ~15% of overall RM
costs) are also available at close proximity of ~10-15km from the limestone
mines.

26 December 2017 7
Sanghi Industries

Efficient power & fuel cost curve


Multi-fuel kiln and captive power plant help achieve cost efficiencies

Power & fuel cost per tonne is lower for SIL, as:
 Power required for cement operations is procured from its low-cost captive unit.
 Thermal power plant is multi-fuel, with the flexibility of using lowest-cost fuel.
 Addition of WHRS will further reduce power cost.
 Availability of lignite offers a competitive edge, especially when petcoke prices rise
sharply.

Fuel cost advantage


 SIL’s kiln is one of the largest in the industry with multi-fuel technology, which
allows it to use the cheapest source of fuel. The sources of fuel for feeding the
kiln are coal, petcoke and lignite. The present fuel mix is ~66% lignite and 34%
coal. Petcoke and coal are typically imported and handled at its captive
port/jetty, which offers additional advantage of lower port charges.
 The company further benefits from low-cost lignite, which is available from
near-by mines of GMDC (at a distance of 35kms from the plant). The cost
differential of lignite on per kcal basis is ~27% that of imported petcoke/coal,
which lowers its overall power and fuel cost/t. The lower GST rate on lignite (5%
v/s 28% previously), along with provision of input credit, can make it an
extremely viable proposition for SIL. The contract for lignite with GMDC is done
for a period of 2-3 months depending upon the requirement of fuel.
 Lignite prices declined after it was brought under the 5% tax bracket under GST
v/s 18% pre-GST. The cost differential between petcoke and lignite is still
substantial, with petcoke being priced at INR1/kcal and lignite at INR0.73/kcal.
 The hike in import duty for petcoke puts SIL in a cost-advantageous position:
The company is likely to see a minimal impact on its power & fuel cost/t due to
an increase in import duty on petcoke, as its dependence on lignite is to the
extent of ~66%, which isolates its power & fuel cost/t to great extent. Its P&F
cost/t will likely be impacted to the extent of increase in imported coal prices
(34% of its fuel mix) due to demand push. Additionally, the industry is expected
to increase cement prices to offset the impact of cost push. As SIL is expected to
continue having a favourable cost curve in comparison top peers, price hikes will
result in a margin improvement for SIL (not factored in our estimates).
 Lignite has high content of volatile matter, which makes it unsuitable for long-
distance transportation. It has high moisture content and ignites spontaneously,
causing problems in transportation and storage. Therefore, accumulating large
stockpiles of lignite is generally avoided. Also, the high water content makes it
difficult to ship, leading to increased transportation cost – water transport is
considered unsuitable due to safety and economic reasons. As a result, lignite is
usually used in power stations constructed very close to mines, and the
exported volume of lignite is insignificant in comparison with coal exports.
Hence, SIL’s unit has the inherent advantage of being located close to the lignite
mines.

26 December 2017 8
Sanghi Industries

Exhibit 8: Comparison of SIL’s power & fuel cost with average MOSL cement universe
Power and Fuel cost for MOSL universe (INR/t) Power and Fuel cost for Sanghi (INR/t)

1,265
1,127
1,054
925
768 799

982 995 959 996 844 799

FY12 FY13 FY14 FY15 FY16 FY17


Source: Company, MOSL

Exhibit 9: SIL’s power & fuel cost is around industry average and shall further improve
post commissioning of WHRS
FY17 power and fuel cost/t for Sanghi and MOSL cement universe (INR/t)
1,061 1,017 965 948
799 793 783
712 650 620
501
ICEM

DBEL
ORCMNT

JKCE
BCORP

UTCEM

SRCM
SIL

TRCL
JKLC
ACC

Source: Company, MOSL

Exhibit 10: Comparison of various alternate fuels


Parameter Pet Coke Lignite Coal

 Very High - 8200 Kcal/Kg  VERY LOW - 3000 to 3200  LOW - varies from 4000 to 6200
Gross Calorific Value (GCV)
guaranteed Kcal/Kg, approx. Kcal/Kg approx.

 MEDIUM TO HIGH - percentage


 Nil (< 1%) - Low ash related
 VERY HIGH (15 TO 30%) - of ash content varies from 10 to
pollution problem - also
ASH unburnt loss due to high ash 20% or may be more depending
material unburnt is reusable as
content upon different type of coal
nil ash content
(Domestic/Imported)
Nature of item  Manufactured product  Natural item  Natural item

Quality  Consistent  WILL VARY - as natural product  WILL VARY - as natural product

 Very Low - nearly 2 - 3 times  HIGH - approx. 2 3 times higher  HIGH TO MEDIUM - approx. 1.5
Material handling
lesser than lignite than pet coke - 2 times higher than pet coke

 Very Low - approx. 20 to 25%  VERY HIGH - most of the  VERY HIGH - most of the
Grinding requirement
material needs grinding material needs grinding material needs grinding

 HIGH - has high moisture - does  HIGH - has high moisture - does
 LOW - very low moisture - does
Moisture content suck moisture from land and suck moisture from land and
not suck moisture by self
atmosphere atmosphere

 LOW - low initial burning loss;  HIGH - high initial burning loss;  HIGH - high initial burning loss;
Volatile matters also is not self-burning in open gets self-burning in heavy gets self-burning in heavy
space due to heavy sunlight sunlight sunlight

Source: www.flamingotraders.in

26 December 2017 9
Sanghi Industries

Captive power plant


 SIL’s 63MW of captive thermal power plant is located at a distance of ~3km
from the grinding unit. This plant supplies the entire power requirement to the
cement unit – it can use coal, petcoke and lignite based on cost differential,
providing additional advantage of low-cost power among available fuel.

Exhibit 11: 63MW captive thermal power plant

Source: Company, MOSL

 SIL is also adding a waste heat recovery system (WHRS) with capacity of 15MW
at estimated capex of INR1.25b (likely to get commissioned by end-FY18), which
should reduce its power cost further. Cost of power generation by WHRS
(~INR0.5/unit) is ~80% lower than cost of power generated from the thermal
power plant (~INR3.5/unit).
 SIL would have excess power post the commissioning of WHRS, which would be
sold to the grid as it has connectivity to the grid line.

Exhibit 12: 15MW WHRS under construction

Source: Company, MOSL

26 December 2017 10
Sanghi Industries

Coastal transport mode provides distinctive advantage


SIL’s freight cost is expected to trend structurally lower on account of:
 Higher proportion of sales via coastal transportation for serving the new markets of
Mumbai and Kerala.
 Ramp-up of its new coastal terminals in Mumbai and Navlakhi.
 Owned captive port ensures lower port charges.
 Acquisition of bulkers to further reduce dependence on external ships.

 SIL incurs higher freight cost than peers as it caters to the higher-lead-distance
markets of Ahmedabad and Surat by way of road. The lead distances for
Ahmedabad and Surat are ~500km and ~750km, respectively, much higher than
industry average of ~400-500km, as limestone mines are located quite far from
the focus markets. However, it recently commissioned two new coast terminals
in Navlakhi and Mumbai, which will be utilized to cater to the Rajkot and
Mumbai markets, respectively, by way of coast, thereby likely reducing freight
cost per tonne going forward.
 Additionally, the company has created export markets for both clinker and
cement by using the coastal mode of transportation, thereby benefiting from
lower freight cost and positive operating leverage. SIL has also created a decent
export market for itself in the Middle East and Sri Lanka.
 In our view, the proportion of sales from the higher-lead-distance (road)
Ahmedabad and Surat markets has peaked and should structurally decline. This
would reduce overall freight cost per tonne for the company.

Exhibit 13: Average freight cost for MOSL universe and SIL

Freight cost for MOSL universe (INR/t) Freight cost for Sanghi (INR/t)

1,472 1,404
1,143 1,149 1,163 1,153

687 859 977 1,046 1,056 1,057

FY12 FY13 FY14 FY15 FY16 FY17


Source: Company, MOSL

26 December 2017 11
Sanghi Industries

Exhibit 14: Coastal distribution strategy

Source: Company, MOSL

Exhibit 15: Lead distances for Ahmedabad and Surat higher than industry

Source: MOSL, Company

26 December 2017 12
Sanghi Industries

Ramp-up of terminal in Dharamtar


 The company recently commissioned the Dharamtar terminal (situated at
~62km from Mumbai) with a vision to increase sales in the higher-priced
Mumbai and Pune markets. The terminal (constructed at a cost of INR150m)
should reduce freight cost by almost 33% compared to road, making the sale of
cement from Kutch to the Maharashtra market a viable proposition. The
terminal will also play an important role when SIL doubles its capacity over the
next 30months in displacing volumes to the markets of Maharashtra.

Exhibit 16: Terminal at Dharamtar, Maharashtra

Source: Company, MOSL

Navlakhi terminal
 The terminal has been constructed (at a cost of INR150m) with a strategy of
selling cement volumes to Rajkot and nearby markets at efficient freight cost.
Ramp-up of the terminal should result in lower freight cost.

Exhibit 17: Terminal at Navlakhi

Source: Company, MOSL

26 December 2017 13
Sanghi Industries

Acquisition of bulkers to further reduce dependence on external ships


 SIL has acquired two bulkers at an estimated cost of INR420m in 2QFY18, which
would further reduce transportation cost by ships. SIL was constrained on higher
movement of cement by the coastal route due to higher demand for coastal
ships. The bulkers would be used to transport cement from Kutch to the
Navlakhi terminal and also to the Mumbai and Kerala markets, thereby reducing
freight cost further and increasing its ability to displace higher volumes to these
markets.

Exhibit 18: Owned captive ports…

Source: Company, MOSL

Exhibit 19: …should provide coastal advantage of low cost transportation

Source: Company, MOSL

26 December 2017 14
Sanghi Industries

Access to large limestone reserve – a major advantage


Competitive edge over others in an environment of higher bidding price for
limestone

 Formation of mine for SIL in the Kutch limestone cluster due to receding sea levels has
left very good quality of soft marine limestone.
 Limestone is available at the surface, which can be extracted through surface mining,
leading to much lower cost of extraction for SIL (compared to peers, which use the
relatively expensive conventional techniques of blasting).
 The limestone reserve size is ~1b tonne, which can support operations at 2x current
capacity for more than 100 years of operations.
 The recent bidding of limestone reserve happened at a premium. This provides
existing players like SIL with access to large limestone reserves with a distinctive
advantage over new players acquiring mines at a higher price.
 High calcium content in limestone further reduces RM cost due to reduced levels of
overburden.

 SIL’s limestone mine was formed after the sea receded from the limestone belt.
The company now possesses soft marine limestone, which is of very good
quality with high calcium content.
 The limestone can be extracted by way of surface mining, as against the
relatively expensive blasting technique.

Exhibit 20: Surface mining

Source: Company, MOSL

Sitting on huge potential reserve of over 1b tonne


 SIL is sitting on huge ‘A’ grade reserves of more than 1b tonne of limestone. The
reserve can support operations at 2x current capacity for more than 100 years.
This is extremely critical, particularly when SIL is looking to double its capacity
over the next 2-3 years. The lease with the mining department for the limestone
reserve is up to the year 2046 post the amendment in the new MMDR act.

26 December 2017 15
Sanghi Industries

Exhibit 21: Limestone reserves

Source: Company, MOSL

Newer assets to come at significant premium; reduce competitive


advantage with legacy assets
 The recent limestone bids by Emami Cement in Nagaur and Dalmia Cement in
Chhattisgarh point to a sharp increase in the limestone mine acquisition cost to
INR400-600/tonne, which implies a significant premium to the current cost of
raw material.
 As can be seen from the last few limestone auctions, the bid prices have been
on a rise (increased from INR284/ton in February 2016 to INR623/ton in July
2017).
 Average raw material price for cement companies is INR650/ton. This includes
royalty charge of INR80/t and DMF charge of ~INR20/t. Apart from the
limestone acquisition cost, handling, freight and additive costs are the other
components of the raw material costs.
 Thus, acquiring limestone at a bid price of ~INR400-600/ton will lead to
~INR300/ton increase in raw material cost, which translates into INR21/bag
increase in price of cement. Thus, players acquiring new capacities will be at
cost disadvantage than the players holding legacy assets. This implies that
players with large limestone reserve are likely to get premium multiple on
account of the competitive edge they possess.
 In an environment of very limited opportunities for large-scale, low-cost
brownfield expansion and rising capex for the new plants, SIL is very well
positioned to benefit from its available resources.
Exhibit 22: Limestone bid prices on a rise

Bid price by cement companies for limestone(INR/ton) Ambuja


800
Cement in
Dalmia Maharashtra
600 Bharat in
Dalmia
Emami Chattisgarh
Bharat in Emami
Shree Cement Cement in
400 Rajasthan Cement in
in Chattisgarh Rajasthan
Dalmia Rajasthan
200 Bharat in
Orissa
0
19-Feb-16 28-Sep-16 5-Jan-17 12-Jan-17 12-Jan-17 2-May-17 3-Jul-17
Source: Company, MOSL

26 December 2017 16
Sanghi Industries

Demand market for SIL is getting favorable

 The western region is likely to witness healthy demand growth over FY17-20, led by
infrastructure spends in Gujarat and Maharashtra.
 Utilization improvement for the region is likely to be healthy over the next three
years, led by better demand and minimal capacity addition.
 SIL is likely to see significant market share gains in the region, led by its target to
double capacity over the coming few years.
 The company’s market mix is likely to turn favorable, driven by higher sales from the
better-priced markets.

Healthy demand improvement in the western region


Cement demand in the western region has been lackluster over the past 2-3 years as
the Maharashtra market remained subdued (especially rural housing) on account of
poor monsoon. With no meaningful pick-up in infrastructure activity, cement
demand in the west grew by a muted ~2% YoY in FY16 and declined by ~8% in FY17.
Demand in FY17 was also weak due to the demonetization-led impact on the real
estate market of Gujarat.
Exhibit 23: Trend in demand in western region
Demand in West (mt) YoY Growth (%)
14%
8% 7% 8%
3% 2% 2%
1%

-8%

41.9 42.3 43.6 44.5 45.4 41.7 45.1 48.2 52.1

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E


Source: Company, MOSL

We expect demand from the western region to grow at a CAGR of ~8% over FY17-
FY20, led by a pick-up in infrastructure activity (on commencement of various
infrastructure projects) and rural housing (on good monsoon) in Maharashtra
(witnessed healthy volume growth for April-June quarter).
Demand from the Gujarat market is also likely to be healthy on account of higher
infrastructure activity (on pre-election spend). While there has been some
demonetization-led impact on the real estate market in Gujarat, we believe the
aggressive launch of affordable housing projects will partially compensate for the
loss of demand.
Exhibit 24: Infrastructure projects in Mumbai
Infrastructure projects in Mumbai Investment planned in INR Bn.
Mumbai Coastal Road project 130
Mumbai Trans-Harbor Link 180
33.5-km Colaba-Bandra-Seepz Metro link 231
Three new Metro lines under MMRDA 21
Mumbai Trans Harbor Link from Sewri to Nhava Sheva 10
Navi Mumbai Airport 145
Source: Vibrantgujarat

26 December 2017 17
Sanghi Industries

Exhibit 25: Infrastructure projects in Gujarat


Investment
Infrastructure projects in Gujarat planned in
INR b
Metro Link Project 360
Gujarat Finance Tech city GIFT 323
Investments for top four cities 101
Jawaharlal Nehru National Urban Renewal Mission (JNNURM) 93
Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT) 26
Other projects and initiatives
Delhi – Mumbai Industrial Corridor and the Dholera Special Investment Region
Dahej Petrochemical & Petroleum Investment Region (PCPIR)
Development of Ahmedabad, Surat, Vadodara and Rajkot as Mission Cities
Development of new townships around current and emerging economic centers
Source: Vibrantgujarat

Exhibit 26: Proposed urban development projects in Gujarat

Source: vibrantgujarat

26 December 2017 18
Sanghi Industries

Upcoming road projects in Gujarat


 Four-laning of Bhavnagar-Talaja: Four road projects worth INR26.4b connecting
religious and tourist places between Bhavnagar and Somnath in Gujarat were
awarded in May 2016. The 256km-long Bhavnagar to Somnath section of NH-8E
(New NH-51) is an important link to connect religious and tourist places of
Talaja, Mahuva, Palitana, Island of Diu, Somnath Temple, Gir National Park,
Porbandar and Dwarka. The NHAI has awarded a contract for four-laning of four
packages of the section of a total length of 175 km. The project will also provide
improved connectivity to the ports of Alang, Pipavav, Jafarabad, Gogha and
Veraval. Since the project would be a cement concrete highway, we expect
significant demand boost to the cement sector.

 Six-laning of Kishangarh-Udaipur-Ahmedabad: The 550km Kishangarh-


Ahmedabad stretch has been divided into five stretches, which include
Kishangarh-Gulabpura, Gulabpura-Chittorgarh, Chittorgarh-Debari, Debari-Kaya
and Kaya-Himmatnagar. Work will start soon on some stretches.

Capacity utilization to see uptick FY18 onward


We expect capacity utilization for the western region to increase from ~74% in FY17
to ~81% by FY20, led by demand improvement and limited capacity addition over
the next 18 months. Capacity utilization for the region has declined from ~83% in
FY13 to 74% in FY17 due to demand weakness over the last 2-3 years, as well as
continued influx of material from the neighboring states of Rajasthan and AP.

We expect pricing power for the region to be healthy going forward, led by
sustained improvement in the utilization levels over the next 2-3 years.

Exhibit 27: Trend in cement capacity and utilization


Cement Capacity in West (mt) West Capacity Utilization (%)
85% 86% 85%
84% 84%
83%
81%
79%
76%
74%

48 50 52 52 53 55 58 60 62 67

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, MOSL

Prices in western region


 Prices in west stood at INR 274/bag in November v/s INR276/bag in October
2017 (-1% MoM).
 Prices in Pune, which had increased by INR20/bag in November, declined by
INR25/bag in the second week.

26 December 2017 19
Sanghi Industries

Exhibit 28: Prices stable across most regions (prices in INR/bag) in November 2017

Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17

313

310
307

305
305
303

302
302

300
299

297
296

295

293
292
290

289
288
288

287

287
285

284
283
282
282

281
281
281

281
281
280

279
276
274
268
North Average Prices East Average Prices West Average Prices South Average Prices Central Average National Average
Prices Prices
Source: Company, MOSL

Exhibit 29: Prices in west decreased by 1%MoM in November 2017 (prices in INR/bag)

West Average Prices


299
290
283
279
276
274
268

May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17


Source: Company, MOSL

SIL consolidating position in Gujarat market


SIL is the third largest cement player in Gujarat by capacity, after Ultratech and
Ambuja Cement. It enjoys strong brand royalty for its brand Sanghi Cement, and is
priced at par with some tier-1 players or at marginal premium to them in select key
markets.

By doubling its capacity over the next 30 months, the company is likely to expand its
capacity share from ~15% to ~26%; other players are unlikely to add meaningful
capacity in the region.

Exhibit 30: SIL - current capacity share in Gujarat

Others, 19%

Ultratech, 45%
Sanghi, 15%

Ambuja, 21%

Source: Company, MOSL

26 December 2017 20
Sanghi Industries

Diversification into other markets


 SIL sells close to ~90% of its volume in Gujarat alone, with strong presence in
Ahmedabad. However, with its next phase of capacity expansion to ~8mt, the
market mix would tilt toward higher-priced markets of Mumbai and Kerala. The
volumes to those markets would be transported by way of coastal route, making
it viable because of affordable freight cost.
 Footprint expansion into Maharashtra and Kerala would also provide SIL access
to the newer markets, and help achieve better utilization when it doubles its
capacity over the next 2-3 years.

Exhibit 31: SIL market mix

Maharashtra, 7%

Others, 4%
Gujarat, 89%

Source: Company, MOSL

PPC mix to change


 With the addition of the new silo for flyash, and additional marketing strategy
the proportion of PPC for SIL is set to increase from present 35% to ~50% in next
18-24 months. As SIL’s target market is more conducive for Ordinary Portland
Cement (OPC), hence PPC for SIL as overall proportion of volume will be
constrained at 50% as against all India average of 65-70%.PPC on account of
higher blending ratio enjoys higher margins as compared to OPC which is likely
to result in overall margins improving for SIL over the next 18-24 months.

Exhibit 32: PPC mix to change from current 35%... Exhibit 33: …to 50% resulting in better margins
Projected product mix
Current product mix

PPC
35% OPC PPC
50% 50%
OPC
65%

Source: Company, MOSL Source: Company, MOSL

26 December 2017 21
Sanghi Industries

Play on multiple re-rating via doubling of capacity

 SIL plans to double its capacity from present levels of 4.1mt to 8.2mt at estimated
incremental capex of INR12b by FY20. This translates into additional capacity being
created at USD45/t, which is at a discount to the cost of creating an integrated cement
plant. Hence, the RoCE profile of new investment will be significantly higher, raising
the overall RoCE profile of SIL.
 Profitability of new capacity to be significantly higher compared to present capacity, with:
 Higher exposure to the better-priced markets of Mumbai and Kerala.
 Greater proportion of blended cement from new capacity, where EBITDA/t is
higher by almost INR200 due to lower cost.
 Freight cost advantage from movement of cement through cost-efficient coastal
route.
 Valuation re-rating: SIL is likely to see multiple re-rating, led by doubling of capacity
over the next 30 months. JKLC and JK Cement had witnessed multiple re-rating from
EV/tonne of USD50-60 to USD100 when they had increased capacity in excess of 50%.

 Efficient capacity expansion: SIL is doubling its capacity from 4.1mt to 8.2mt at
estimated capex of INR12b, which translates into capex of USD45/t. Estimated
capex for the new unit is lower than regular capex of USD80-100/ton, as major
part of investments in township and other ancillary activity has already been
incurred.
 Clinker capacity addition: SIL’s clinker capacity in Kutch will be increased to
~6mt by adding another line of 10,000 tonnes per day at the existing location.
There is sufficient land available for expansion of the project at the existing
location, with total land requirement of ~31ha. The present clinker line occupies
total land of 70ha.

Exhibit 34: SIL will incur INR 12bn of capex for capacity addition of 4.2mt
Clinker Capcity Grinding Capacity Captive Power

INR 2bn

INR 6.5bn
INR 3.5bn

Source: Company, MOSL

 Further scope to augment capacity of clinkerization unit: The new clinker line
of 10,000tpd could be further increased to 12,000tpd (0.7mt) with minor
modifications and capex.
 Split grinding units: SIL would set up two grinding units of 2mt each, with one of
them in proximity to the mother clinker unit in Kutch (~10km away). The other
split grinding unit would be set up in Surat to cater to the Gujarat market.
Clinker from the Kutch unit would be transported to Surat GU by way of coastal

26 December 2017 22
Sanghi Industries

shipping, where freight cost savings would be to the extent of ~30% v/s road
freight. The company would be required to construct an associated terminal for
clinker transportation to Surat, which will require capex of INR150m.
 Product mix favorable: The present product mix suggests that ~35% of overall
volume is sold as PPC, where profitability is much higher than the traditional
OPC product. However, under the new expansion, the integrated grinding unit
would produce OPC, while the split grinding unit would produce only PPC of
higher profitability. Hence, the product mix for the expanded unit would be
50:50 toward OPC:PPC, as against 65:35 now.
 Captive power plant and WHRS: The expanded capacity’s power requirement
would be met via its captive power plant of 63MW. Total power availability is
expected to be 139 MW, implying excess power in the unit, which could be sold
in the grid.
 Market mix turning favorable: The grinding capacities at Kutch and Surat are
likely to improve the market mix for SIL, as it increases sales to the higher-priced
markets of Maharashtra and Kerala. The new integrated grinding unit in Kutch
will be mainly utilized to cater to these markets via the cost-efficient coastal
route. As there exists price/realization difference of INR20/bag, profitability
from these newer markets is expected to be significantly higher.

Freight cost reduction for Surat market


 At present, the Surat market is serviced by way of road, where the lead distance
and cost of transportation are high. With the setting up of a grinding unit in
Surat and an associated coast-based terminal, freight cost would reduce on
account of the shift in the transportation mode from road to sea, which is ~30%
cheaper. We believe this should result in freight cost savings of INR50-
100/tonne, improving the unit’s overall profitability.

Valuation re-rating led by capacity expansion


 Cement companies tend to trade at different bands of EV/tonne based on their
capacity and market diversification. It has been observed that stocks have got
re-rated in the past post capacity addition and forays into new markets, as it
reduces concentration risk on earnings.
 In case of JK Lakshmi Cement and JK Cement, it has been observed that when
they increased their respective capacities, they moved up the trading band of
EV/tonne from sub-USD70 to USD100. Additionally, when Shree Cement
doubled its capacity from 13mt to 26mt, the stock got re-rated and started to
trade at EV/tonne of USD200 from USD100 previously.
 SIL is likely to follow suit in terms of re-rating, given its plans to double capacity
from 4.1mt to 8.2mt at incremental capex of INR12b over the next 30 months.
Capacity expansion at EV of USD45/t would result in a reduction in overall
blended EV/tonne. New capacity would thus generate a higher RoCE, which
would improve the overall RoCE profile of SIL.
 We expect SIL to report revenue CAGR of 18% to reach INR16.4b over FY17-20.
This is expected to be driven by 6% volume CAGR, led by (i) an improving
demand scenario in its core markets and (ii) higher sales to the markets of
Maharashtra due to higher movement of cement through coastal routes.
Accordingly, EBITDA should increase at a CAGR of 33%, with margins

26 December 2017 23
Sanghi Industries

improvement led by better pricing in its focus markets, cost-saving initiatives


and positive operating leverage. Similarly, EBITDA/t is likely to increase at a
CAGR of 26% to INR1363 in FY20.
 Additionally, the transition from high-cost debt of Piramal at ~15% to low-cost
debt at ~11% would further bring down interest cost savings by INR100-120m
over FY18-FY20
 This is likely to translate into earnings CAGR of ~61% over FY17-20E, with RoE
likely to be in excess of ~16% in FY20 (implying expansion of ~11pp over FY17
RoE of sub-6%).
 At CMP of INR127/share, SIL trades at EV/EBITDA of ~8.0/5.9x on FY19E/FY20E
earnings (adjusted for CWIP related to doubling of capacity). It trades at EV/t of
USD115/80 on FY19/FY20E capacity. We value SIL’s present capacity of 4.1mt at
EV/tonne of USD120 and the proposed capacity expansion of 4.1mt at USD78/t
(35% discount to replacement cost of USD120/t) to capture the low capital cost
for incremental capex. Hence, we value overall capacity of 8.2mt (with
additional debt of INR12b for additional capacity) at USD99/t. Incremental cost
of capacity addition is lower at USD45/t v/s industry standard of USD120/t, as
expansion is brownfield in nature and as significant amount of capex has been
incurred toward the ancillary set-up.
 We thus initiate coverage on SIL with a Buy rating and a target price of
INR157/share, implying upside of ~23% from present levels.
Exhibit 35: SOTP Valuation
INR mn Existing operations Expanded operations Combined operations
Capacity (mt) 4.1 4.1 8.2
Multiple (EV/tonne) USD 120 78 99
EV 31980 20787 52767
Less debt 6300 12000 18300
Market value 34467
Per share value (INR) 157
CMP (INR) 127
% Upside 23%
Source: Company, MOSL

Exhibit 36: Comparative Valuations


FY17 EV/ton (USD/t) EV/EBITDA (x)
Company
Capacity (mt) FY19E FY20E FY19E FY20E
Sanghi 4.1 115 80 8.0 5.9
Sagar Cement * 4.3 58 53 8.1 6.6
Heidelberg* 5.4 115 115 10.0 7.9
JK Lakshmi 10.9 77 72 9.7 7.8
Orient Cement 11.6 88 86 8.9 6.1
JK Cement 12.3 119 117 9.6 8.3
Birla Corporation 15.4 116 101 10.4 7.7
India Cement 16 77 73 7.8 6.5
Ramco Cements 17 172 162 13.6 10.6
Dalmia Cements 25 201 195 14.8 12.5
Source: Company, MOSL, *Bloomberg

26 December 2017 24
Sanghi Industries

SWOT analysis
 Abundant availability  High dependence on  Doubling of capacity  Threat from Gujarat
of high-quality single market of from 4.1mt currently to based players to
marine limestone by Gujarat 8mt over the next 24 increase capacity in the
way of surface mining  Single market cluster
months
results in lower raw concentration high  Price volatility in the
 Diversification into new core markets
material cost
 Strategically placed higher-priced markets
near coast to use like Mumbai,
efficient mode of Mangalore, Cochin by
transportation of sea way of coastal mode
 Integrated operations  Product mix
with captive power
enhancement to higher
plant, port facility
proportion of PPC

26 December 2017 25
Sanghi Industries

Bull & Bear case

Bull case
 In the bull case, we assume volume growth for SIL to increase at CAGR of 9%
over FY17-FY20E led by increased demand from focus markets of Gujarat as also
higher volumes sold in markets of Mumbai and Cochin.
 We assume realization improvement to increase at CAGR of 12% over FY17-
FY20E due to improved utilization of Gujarat market led by increased demand,
no incremental supply pressure in the core markets, diversifying to newer
markets with higher realization.
 This translates into margin improvement to 29.6% in FY20 from 19.9% in FY17.
EBITDA/t will likely increase at CAGR of 28% between FY17-FY20 to INR1427
largely led by pricing improvement in core and focus markets as also higher
proportion of PPC sales in overall volumes.
 This translates into earnings CAGR of 72% over FY17-FY20 on account of 39%
CAGR in EBITDA over the same period.
 Given strong improvement in profitability we assign a target multiple of EV/t of
USD105 on expanded capacity of 8.2mt which is put up at an incremental capex
of ~INR12b. We hence arrive at a target price of INR171/share implying upside
of 35% from present levels.

Bear case
 In the bear case, we assume volume growth for SIL to increase at CAGR of 2%
over FY17-FY20E due to weak demand in its focus markets as also coastal
markets of Mumbai and Cochin.
 We assume realization improvement to increase at CAGR of 7% over FY17-FY20E
as utilization for the western region remains subdued due to weak demand and
incremental supply pressure.
 This translates into margin being largely flattish to 19.1% in FY20 from 19.9% in
FY17 as realization improvement has been offset by cost push. EBITDA/t will
likely be flat between FY17-FY20 to INR695 as muted pricing improvement is
being offset by cost push.
 This translates into earnings declining at CAGR of 3% over FY17-FY20.
 As profitability of core markets will be sluggish and the profitability of new
capacity would be at risk, we assign a target multiple of EV/t of USD70 on
expanded capacity of 8.2mt which is put up at an incremental capex of ~INR12b.
We hence arrive at a target price of INR86/share implying downside of 32%
from present levels.

26 December 2017 26
Sanghi Industries

Exhibit 37: Scenario Analysis – Bull Case Exhibit 38: Scenario Analysis – Bear Case
FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20
Sales (INR m) 9,975 12,896 15,572 18,138 Sales (INR m) 9,975 12,130 12,482 12,844
Sales growth (%) 30.9 29.3 20.8 16.5 Sales growth (%) 30.9 21.6 2.9 2.9
EBITDA (INR m) 1,982 3,111 4,163 5,366 EBITDA (INR m) 1,982 2,812 2,387 2,103
EBITDA Margin (%) 19.9 24.1 26.7 29.6 EBITDA Margin (%) 19.9 23.2 19.1 16.4
EBITDA growth (%) 31.1 57.0 33.8 28.9 EBITDA growth (%) 31.1 41.9 (15.1) (11.9)
PAT (INR m) 631 1,344 2,258 3,213 PAT (INR m) 631 1,103 832 593
PAT Margin (%) 6.33 10.42 14.50 17.71 PAT Margin (%) 6.33 9.10 6.67 4.61
PAT growth (%) (15.68) 112.83 68.03 42.26 PAT growth (%) (15.68) 74.71 (24.59) (28.76)
EPS (INR) 2.87 6.11 10.27 14.60 EPS (INR) 2.87 5.02 3.78 2.69
Target Multiple (EV/t) USD 105 Target Multiple (EV/t) USD 70
Target price (INR) 171 Target price (INR) 86
Upside/downside (%) 35% Upside/downside (%) -32%
Source: Company, MOSL Source: Company, MOSL

26 December 2017 27
Sanghi Industries

Financials and Valuations


Income Statement (INR Million)
Y/E Mar 2013 2014 2015 9M-2016 2017 2018E 2019E 2020E
Net Sales 10,552 10,483 9,323 7,622 9,975 12,679 14,644 16,448
Change (%) 8.3 -0.7 -11.1 -18.2 30.9 27.1 15.5 12.3
EBITDA 2,011 1,971 1,574 1,512 1,982 3,027 3,790 4,648
EBITDA Margin (%) 19.1 18.8 16.9 19.8 19.9 23.9 25.9 28.3
Depreciation 1,454 1,478 1,064 540 731 756 775 760
EBIT 557 494 510 972 1,251 2,270 3,014 3,887

Interest 149 141 275 222 642 704 599 631


Other Income 120 83 71 17 22 29 33 37
Extraordinary items 0 0 0 -604 0 0 0 0
PBT 528 436 306 164 631 1,595 2,448 3,293
Tax 69 -60 0 4 0 319 490 659
Tax Rate (%) 13.0 -13.8 0.0 2.4 0.0 20.0 20.0 20.0
Min. Int. & Assoc. Share 0 0 0 0 0 0 0 0
Reported PAT 459 496 306 160 631 1,276 1,958 2,635
Adjusted PAT 459 496 306 749 631 1,276 1,958 2,635
Change (%) -44.0 8.1 -38.3 144.8 -15.7 102.0 53.5 34.6

Balance Sheet (INR Million)


Y/E Mar 2013 2014 2015 9M-2016 2017 2018E 2019E 2020E
Share Capital 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200
Reserves 6,200 6,695 6,909 7,812 8,442 9,718 11,676 14,310
Net Worth 8,399 8,895 9,109 10,012 10,642 11,917 13,875 16,510
Debt 7,514 6,507 5,351 5,863 6,366 6,366 10,616 15,616
Deferred Tax -540 -540 -585 -585 -585 -585 -585 -585
Total Capital Employed 15,374 14,862 13,875 15,289 16,423 17,698 23,906 31,541
Gross Fixed Assets 21,632 21,949 22,873 25,356 25,820 27,157 27,157 27,157
Less: Acc Depreciation 7,818 9,293 10,492 10,573 11,301 12,057 12,833 13,593
Net Fixed Assets 13,815 12,656 12,380 14,783 14,519 15,099 14,324 13,564
Capital WIP 546 593 563 824 1,671 1,774 7,440 14,440
Investments 0 0 0 0 0 0 0 0
Current Assets 3,913 3,779 4,071 4,012 3,881 5,546 6,811 8,383
Inventory 2,112 1,478 1,671 1,385 1,866 2,327 2,825 3,071
Debtors 251 125 145 184 239 486 802 1,036
Cash & Bank 35 340 55 830 163 197 255 986
Loans & Adv, Others 1,515 1,837 2,199 1,613 1,613 2,536 2,929 3,290
Curr Liabs & Provns 2,899 2,166 3,140 4,329 3,648 4,716 4,664 4,841
Curr. Liabilities 1,606 1,887 2,756 3,547 3,065 3,975 3,807 3,878
Provisions 1,294 279 385 782 584 742 857 962
Net Current Assets 1,013 1,613 931 -317 233 830 2,147 3,542
Total Assets 15,374 14,862 13,875 15,290 16,423 17,703 23,911 31,546

26 December 2017 28
Sanghi Industries

Financials and Valuations


Ratios
Y/E Mar 2013 2014 2015 9M-2016 2017 2018E 2019E 2020E
Basic (INR)
EPS 2.1 2.3 1.4 3.4 2.9 5.8 8.9 12.0
Cash EPS 8.7 9.0 6.2 5.9 6.2 9.2 12.4 15.4
Book Value 41.6 43.6 43.3 47.8 50.6 56.4 65.3 77.3
DPS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Payout (incl. Div. Tax.) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Valuation(x)
P/E 91.3 37.3 44.2 21.9 14.3 10.6
Cash P/E 20.4 21.7 20.5 13.7 10.2 8.2
Price / Book Value 2.9 2.7 2.5 2.3 1.9 1.6
EV/Sales 3.5 4.3 3.4 2.7 2.6 2.6
EV/EBITDA 20.8 21.5 16.1 10.5 8.0 5.9
EV/tonne (US$) 122 119.8 121.0 120.5 115.0 79.6
Profitability Ratios (%)
RoE 5.1 5.3 3.2 7.5 5.8 10.8 14.6 16.8
RoCE 3.6 4.2 3.9 6.4 7.7 10.4 11.4 11.1
Turnover Ratios (%)
Asset Turnover (x) 0.7 0.7 0.7 0.5 0.6 0.7 0.6 0.5
Debtors (No. of Days) 9 4 6 9 9 14 20 23
Inventory (No. of Days) 73 51 65 66 68 67 70 68
Creditors (No. of Days) 16 31 67 69 52 49 47 46
Leverage Ratios (%)
Net Debt/Equity (x) 0.7 0.6 0.5 0.4 0.5 0.5 0.7 0.8

Cash Flow Statement (INR Million)


Y/E Mar 2013 2014 2015 9M-2016 2017 2018E 2019E 2020E
Adjusted EBITDA 2,011 1,971 1,574 1,512 1,982 3,027 3,790 4,648
Non cash opr. exp (inc) 108 74 60 -683 0 0 0 0
(Inc)/Dec in Wkg. Cap. -661 70 357 -14 -1,218 -563 -1,260 -664
Tax Paid -8 -12 -6 -1 0 -319 -490 -659
Other operating activities 4 1 -16 -774 0 0 0 0
CF from Op. Activity 1,454 2,105 1,969 39 764 2,145 2,040 3,325
(Inc)/Dec in FA & CWIP -256 -442 -743 -464 -1,311 -1,440 -5,666 -7,000
Free cash flows 1,199 1,663 1,226 -425 -547 705 -3,626 -3,675
(Pur)/Sale of Invt 0 0 0 0 0 0 0 0
Others 19 315 13 4 22 29 33 37
CF from Inv. Activity -236 -127 -730 -460 -1,289 -1,411 -5,633 -6,963
Inc/(Dec) in Net Worth 0 0 0 0 0 0 0 0
Inc / (Dec) in Debt -1,010 -1,390 -980 1,876 504 0 4,250 5,000
Interest Paid -194 -216 -274 -253 -642 -704 -599 -631
Divd Paid (incl Tax) & Others -40 -67 -269 -427 0 0 0 0
CF from Fin. Activity -1,243 -1,673 -1,523 1,196 -139 -704 3,651 4,369
Inc/(Dec) in Cash -26 305 -284 775 -663 29 58 731
Add: Opening Balance 60 35 340 55 830 167 197 255
Closing Balance 35 340 55 830 167 197 255 986

26 December 2017 29
Sanghi Industries

NOTES

26 December 2017 30
REPORT GALLERY
RECENT INITIATING COVERAGE REPORTS

`
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Sanghi Industries
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inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice. The matter is currently
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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
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Disclosure of Interest Statement Sanghi Industries
Analyst ownership of the stock No
A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary
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subject company for which Research Team have expressed their views.
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investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
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appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
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as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
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Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS
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Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private
Equity products

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