Sanghi Industries Ltd

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Category
NameReco DateReco priceTargetProspero RatingReport Date*
Sanghi Industries10May2014 Rs. 17Rs. 307 / 1011May2014

A) Company background: Sanghi Industries Limited is a Gujarat based cement manufacturer and distributes its cement under the brand Sanghi. Sanghi brand is very well known in the region of Gujarat and Rajasthan. The manufacturing plant is located in AbdasaTaluka of Kutch District of Gujarat State and has a capacity of 3 million tons per annum. The company has its captive power plant of 63 MW

Summary:

– Capacity:  3 million ton

– Captive power plant: 63 MW

– Own Jetty to dispatch cement through sea route

B) Investments arguments:

1. Improving demand cycle for Cement due to economic improvement: With election now behind us, and expectation of a decisive government, the business sentiments are improving and the cement demand is picking up slowly. The cement prices have shown strength due to shutdown of some plants in North India and comparative uptick on demand side due to better business sentiments turning into execution of projects.

Cement Data for Sanghi

*Current Utilization is at 86%

2. Promoters on debt reduction program: Though Sanghi is not expanding its capacities; it has started to reduce its debt continuously. The total debt reduced nearly by Rs 200 crores since 2012. As on Sep2014, the company debt stands at around Rs 650 crores and total current and non-current liabilities at Rs 888 crores. We expect further reduction in debt in coming years.

3. Very healthy cash flows for Sanghi: Though the profits and EPS for Sanghi looks too less, the real trick is to look at the cash flow generation in Sanghi. A glance at the table below will help you understand the strong cash flow generation from operations. Sanghi has been able to generate cash flows between Rs100 crores to Rs 200 crores in the last 3 years. Comparing its cash flows with market cap of Rs 400 crores gives enough indication of that the company is generating excellent cash flows.

4. Increase in promoter stake: Sanghi Industries promoters have been continuously utilizing their own creeping acquisition limits by increasing the stake at all prices in the last 4 years. In FY15, the promoters have already acquired 3%+ shares and we believe that they will exhaust their 5% limit by the end of May2014. This gives tremendous confidence to our above logic.

5. Valuations: Sanghi with a market cap of Rs 400 crores and its 3 million ton capacity is trading at a substantial discount on every valuation parameter like Replacement value, EV/Ton, or free cash flow generation. With Sanghi promoters increasing their official promoter holding and decreasing its debt over last 2 years, we are confident that the rewards should be mich higher than the risks in this company.

C) Key risks:

Cement cycle does not pick up and cement prices fall giving losses from company’s operations

*Report Date may sometimes be different from Recommended Date.

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