RESULTS REVIEW 2QFY18 13 NOV 2017

Sanghi Industries
NEUTRAL
INDUSTRY CEMENT Off season blues
CMP (as on 13 Nov 2017) Rs 117
Sanghi Industries (SNGI) delivered a weak quarter Highlights of the quarter
Target Price Rs 112 (EBITDA at Rs 467mn, (0.5)/(29.3)% YoY/QoQ),
Realisations remained flattish (Rs 4,295/t, 20.7/(0.7)%
Nifty 10,225 despite good headline profitability (EBITDA/t at Rs
YoY/QoQ), driven by pricing remaining unchanged in
Sensex 33,034 975, 20.9/(1.9)% YoY/QoQ). This was largely driven
Gujarat. P&F costs moderated (8.1)% QoQ, led by
by weak volumes (0.48 mT, (17.7)% YoY), weighed
KEY STOCK DATA cheaper lignite, which forms ~75-80% of the fuel mix.
down by heavy rains in Gujarat, leading to a dispatch
Bloomberg SNGI IN The decline would be larger, but for a CPP shutdown in
holiday of a week or so.
No. of Shares (mn) 220 the quarter, which led to higher power costs (Rs
SNGI remains structurally favorable owing to its huge 3.4/kWh vs Rs 3/kWh in 1Q). It also sold slag cement in
MCap (Rs bn) / ($ mn) 26/395 limestone reserves. It is also amongst the lowest cost 2QFY18 (2% of the mix).
6m avg traded value (Rs mn) 128 producers of cement, owing to its proximity to lignite
STOCK PERFORMANCE (%) mines in Gujarat. The addition of two ships to its Near-term outlook: P&F costs should moderate
transport mix, currently largely truck based, will help further, given CPP shutdowns and low volumes in 2Q.
52 Week high / low Rs 137/46 Prices in Gujarat remain stable, and volumes have
it add significant volumes in Mumbai, and create a
3M 6M 12M market for eventual doubling of capacity to 8 mTPA. returned after a tepid 1H. Further improvement should
Absolute (%) 60.5 44.9 82.5 However, valuations at 8.1/6.3x FY19/20 EV/EBITDA happen once the electoral process is out of the way,
Relative (%) 54.7 35.5 59.3 largely factor in these advantages. Maintain sometime in mid-June. We have cut our volume
NEUTRAL with a revised TP of Rs 112 (7.0x Sep-19 estimates 4.3/10.3/5.6% for FY18/19/20, leading to a
SHAREHOLDING PATTERN (%)
EV/EBITDA, USD105/t). reduction in EBITDA estimates by 6.9/15.4/8.7.
Promoters 74.98
FIs & Local MFs 4.07
Financial Summary
FPIs 0.16 (Rs mn) 2QFY18 2QFY17 YoY(%) 1QFY18 QoQ(%) FY16 FY17E FY18E FY19E FY20E
Public & Others 20.79 Net Sales 2,056 2,070 (0.7) 2,875 (28.5) 7,622 9,975 11,581 14,098 15,641
Source : BSE EBITDA 467 469 (0.5) 661 (29.3) 1,550 2,004 2,766 3,657 4,162
PAT 109 85 28.4 316 (65.4) 763 631 1,014 1,871 2,443
Ankur Kulshrestha, CFA Diluted EPS (Rs) 0.50 0.39 28.4 1.44 (65.4) 3.5 2.9 4.6 8.5 11.1
ankur.kulshrestha@hdfcsec.com P/E (x) 25.4 40.9 25.5 13.8 10.6
+91-22-6171 7346
EV / EBITDA (x) 14.9 15.9 11.3 8.1 6.3
Meera Midha RoE (%) 9.8 7.8 11.6 19.1 21.4
meera.midha@hdfcsec.com Source: Company, HDFC sec Inst Research
+91-22-6171 7334 Note: FY16 is a 9-month period ending March 2016 due to financial year change (June to March ending) N/M Not Meaningful
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

Weaker volumes (down Quarterly Financials Snapshot

17.3% YoY) led to flattish (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
EBITDA (Rs 467mn) Net Sales 2,056 2,070 (0.7) 2,875 (28.5)
Power & Fuel 458 388 693
Freight Expenses 599 594 943
RM Costs 128 134 195
Employee costs 136 130 123
(Increase)/Decrease in stock (28) 21 (95)
Other Operating Expenses 295 334 357
EBITDA 467 469 (0.5) 661 (29.3)
Other operating income 0 2 0
Other Income/(expense) 11 6 105.6 21 (45.7)
Interest Cost 189 182 3.7 187 0.8
Depreciation 180 184 178
PBT 109 111 (1.8) 316 (65.4)
Tax 0 26 0
APAT 109 85 28.4 316 (65.4)
Source: Company, HDFC sec Inst Research
FY16 was a truncated 9 month year. N/M Not Meaningful.

Per Tonne Analysis

Per tonne data 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Cement sales (mT) 0.47 0.57 (18.5) 0.65 (28.0)
Clinker sales (mT) 0.00 0.00 N/M 0.00 (100.0)
P&F costs down 8.6% QoQ, as
Total volumes (mT) 0.48 0.58 (17.3) 0.66 (27.7)
benefits of cheaper lignite
Blended realisations (Rs/T) 4,274 3,558 20.1 4,325 (1.2)
begin to flow through
P&F costs (Rs/T) 952 667 42.8 1,042 (8.6)
Freight costs (Rs/T) 1,245 1,021 22.0 1,418 (12.2)
RM costs (Rs/T) 267 230 16.3 293 (8.9)
Other costs (Rs/T) 839 834 0.6 579 45.0
Cement EBITDA/T (Rs/t) 970 806 20.3 994 (2.3)
Cement costs/t 3,304 2,751 20.1 3,331 (0.8)
Source: Company, HDFC sec Inst Research
FY16 was a truncated 9 month year.

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

Peer Valuations
MCap CMP TP EV/EBITDA (x) P/E (x) EV/T (US$)
Company Reco.
(Rs bn) (Rs) (Rs) FY19E FY20E FY19E FY20E FY19E FY20E
UltraTech Cement 1,194.3 4,349 3,835 NEU 16.6 13.3 44.8 30.0 232 223
Shree Cement 628.8 18,049 17,195 NEU 14.4 11.9 22.7 20.1 237 223
Ambuja Cement1 538.5 271 220 SELL 14.6 12.1 23.3 18.8 175 169
ACC1 330.6 1,757 1,542 SELL 12.9 11.1 23.7 19.5 145 144
Ramco Cements 165.3 695 690 NEU 12.8 12.9 19.8 20.7 212 211
Birla Corp 84.8 1,102 1,455 BUY 10.3 9.4 20.5 17.6 126 122
Orient Cement 33.4 163 165 NEU 10.4 8.4 19.1 13.0 99 93
Sanghi Industries 25.8 117 112 NEU 8.1 6.3 13.8 10.6 114 102
Deccan Cements 8.0 568 734 BUY 4.6 5.0 8.8 9.7 49 48
Note: Prices as of November 13, 2017, close. US$: INR = 64.67
1
December YE

Key Assumptions
Year Ending June FY16 FY17 FY18E FY19E FY20E
Blended volumes (mn t) 2.07 2.89 2.90 3.37 3.59
Realizations (Rs/t) 3,679 3,452 3,993 4,181 4,361
P&F cost/t (Rs/t) 774 799 981 982 982
Raw material cost/t (Rs/t) 253 246 285 304 324
Freight cost/t (Rs/t) 1,351 1,317 1,283 1,315 1,348
Other costs (Rs/t) 521 359 388 392 433
EBITDA/t 741 687 948 1,080 1,156
Source: Company, HDFC sec Inst Research
Note: FY16 is a 9 month period ending March 2016 due to financial year change (June to March ending)
We have reduced our EBITDA Changes In Estimates
(6.9/15.4/8.7 for FY18/19/20) Old New % Change
estimates on account of lower FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
volume assumptions Volumes (mT) 3.03 3.76 3.8 2.9 3.4 3.6 (4.3) (10.3) (5.6)
Realisations (Rs/T) 4,001 4,197 4,369 3,993 4,181 4,361 (0.2) (0.4) (0.2)
Revenues (Rs mn) 12,117 15,772 16,608 11,581 14,098 15,641 (4.4) (10.6) (5.8)
EBITDA (Rs mn) 2,972 4,323 4,558 2,766 3,657 4,162 (6.9) (15.4) (8.7)
PAT (Rs mn) 1,190 2,424 2,775 1,014 1,871 2,443 (14.8) (22.8) (12.0)
Source: HDFC sec Inst Research

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

While volumes declined 17.3% Volumes Declined 17.3% YoY Realisations Remained Flattish
Cement realisations (Rs/T) YoY (%)
YoY, SNGI delivered an Sales volume (mT) YoY(%)
EBITDA/t of Rs 957. 1.0 mnT 60.00 5,000 Rs/T % 40.00
0.9 50.00 30.00
0.8 40.00 4,500 20.00
0.7 30.00 10.00
0.6 4,000
20.00 -
0.5
10.00 (10.00)
0.4 3,500
0.3 - (20.00)
0.2 (10.00) 3,000 (30.00)
0.1 (20.00) (40.00)
0.0 (30.00) 2,500 (50.00)

4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Strong Delivery At Rs 957/t P&F costs improved due to cheaper lignite

RM cost/T P&F Costs/T Freight cost/T
EBITDA/T (Rs) YoY (%)
Employee cost/T Other expenditure
Rs/T %
1,200 250.00
4,000
1,000 200.00 3,500
150.00 3,000
800
100.00 2,500
600 2,000
50.00
400 1,500
-
1,000
200 (50.00) 500
0 (100.00) 0

4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

Income Statement Balance Sheet

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E
Net sales 7,622 9,975 11,581 14,098 15,641 SOURCES OF FUNDS
Growth % 9.2 (1.8) 16.1 21.7 10.9 Share Capital 2,200 2,200 2,200 2,200 2,200
Material Expenses 2,972 3,819 4,500 5,289 5,780 Reserves 8,310 8,940 9,953 11,825 14,268
Employee Expenses 382 525 570 628 690 Total Shareholders Funds 10,510 11,140 12,153 14,025 16,468
SG&A Expenses 2,472 3,392 3,465 4,173 4,566 Minority Interest
Other operating expenses 259 252 296 369 459 Long Term Debt 4,712 4,590 4,465 3,605 2,498
Operating profits 1,536 1,987 2,749 3,640 4,145 Short Term Debt 1,624 2,206 1,661 1,910 1,910
Operating Profit Margin (%) 20.2 19.9 23.7 25.8 26.5 Total Debt 6,337 6,796 6,126 5,515 4,407
Other operating income 14 17 17 17 17 Deferred Taxes (585) (585) (585) (585) (585)
EBITDA 1,550 2,004 2,766 3,657 4,162 Long Term Provisions & Others 840 751 751 751 751
EBITDA % 20.3 20.1 23.9 25.9 26.6 TOTAL SOURCES OF FUNDS 17,101 18,101 18,445 19,705 21,040
EBITDA Growth % 32.4 (3.1) 38.1 32.2 13.8 APPLICATION OF FUNDS
Depreciation 540 731 759 787 801 Net Block 14,783 14,519 15,260 14,973 14,671
EBIT 1,010 1,273 2,007 2,870 3,361 CWIP 824 1,671 1,671 1,671 1,671
Other Income (including EO Investments 0 0 0 0 0
(625) 1 61 65 68
items) LT Loans and Advances 195 0 0 0 0
Interest 222 642 802 596 375
Total Non-current Assets 15,801 16,190 16,931 16,644 16,343
PBT 163 631 1,267 2,339 3,054
Inventories 1,385 1,866 1,855 2,669 2,344
Tax 4 0 253 468 611
Debtors 184 239 261 347 327
RPAT 160 631 1,014 1,871 2,443
Other Current Assets 915 1,533 1,533 1,533 1,533
EO (Loss) / Profit (Net Of Tax) (604) - - - -
Cash & Equivalents 830 163 167 1,104 3,224
APAT 763 631 1,014 1,871 2,443
Total Current Assets 3,314 3,801 3,817 5,654 7,429
APAT Growth (%) 232.8 (38.0) 60.5 84.6 30.5
Creditors 1,440 1,421 1,835 2,124 2,262
Adjusted EPS (Rs.) 3.5 2.9 4.6 8.5 11.1 Other Current Liabilities &
EPS Growth (%) 232.8 (38.0) 60.5 84.6 30.5 575 469 469 469 469
Provns
Source: Company, HDFC sec Inst Research Net Current Assets 1,300 1,912 1,514 3,062 4,698
Note: FY16 is a 9 month period ending March 2016 due to financial year change (June to
TOTAL APPLICATION OF FUNDS 17,101 18,102 18,445 19,706 21,041
March ending). Growth rates adjusted to reflect the same
Source: Company, HDFC sec Inst Research

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

Cash Flow Key Ratios

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
Reported PBT 164 631 1,267 2,339 3,054 PROFITABILITY (%)
Non-operating & EO items 611 (18) (78) (82) (85) EBITDA Margin 20.3 20.1 23.9 25.9 26.6
Interest expenses 222 642 802 596 375 APAT Margin 10.0 6.3 8.8 13.3 15.6
Depreciation 540 731 759 787 801 RoE 9.8 7.8 11.6 19.1 21.4
Working Capital Change (813) (1,264) 402 (610) 483 Core RoCE 9.5 9.0 13.2 18.7 24.6
Tax paid (4) - (253) (468) (611) RoCE 8.9 8.4 12.9 17.3 19.0
OPERATING CASH FLOW ( a ) 719 722 2,897 2,562 4,017 EFFICIENCY
Capex (661) (1,117) (1,500) (500) (500) Tax Rate (%) 2.4 20.0 20.0 20.0 20.0
Free cash flow (FCF) 58 (394) 1,397 2,062 3,517 Asset Turnover (x) 0.6 0.7 0.8 0.9 1.0
Investments - - - - - Inventory (days) 50 45 44 44 44
Non-operating Income (7) 18 78 82 85 Debtors (days) 6 6 6 6 6
INVESTING CASH FLOW ( b ) (668) (1,099) (1,422) (418) (415) Payables (days) 56 39 38 38 38
Debt Issuance/(Repaid) 759 459 (670) (611) (1,108) Cash Conversion Cycle (days) (0) 11 11 11 11
Interest expenses (222) (642) (802) (596) (375) Debt/EBITDA (x) 2.7 2.5 1.6 0.9 0.2
FCFE 588 (559) 4 938 2,120 Net D/E 0.49 0.49 0.44 0.32 0.21
Share Capital Issuance - - - - - Interest Coverage 6.9 3.1 3.4 6.1 11.0
Dividend - - - - - PER SHARE DATA
FINANCING CASH FLOW ( c ) 537 (183) (1,472) (1,206) (1,483) EPS (Rs/sh) 3.5 2.9 4.6 8.5 11.1
NET CASH FLOW (a+b+c) 588 (559) 4 938 2,120 CEPS (Rs/sh) 5.9 6.2 8.1 12.1 14.7
EO Items/Others 187 (108) DPS (Rs/sh) - - - - -
Closing Cash & Equivalents 644 271 167 1,104 3,224 BV (Rs/sh) 47.8 50.6 55.2 63.8 74.9
Source: Company, HDFC sec Inst Research VALUATION
Note: FY16 is a 9 month period ending March 2016 due to financial year change (June to
P/E 25.4 40.9 25.5 13.8 10.6
March ending)
P/BV 2.5 2.3 2.1 1.8 1.6
EV/EBITDA 14.9 15.9 11.3 8.1 6.3
OCF/EV (%) 3.7% 2.8% 11.2% 9.9% 15.6%
FCF/EV (%) 1.0% (1.5%) 5.4% 8.0% 13.6%
FCFE/Market Cap (%) 2.2% (6.2%) 2.3% 9.3% 20.4%
Dividend Yield (%) - - - - -
Source: Company, HDFC sec Inst Research

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
Sanghi Inds TP 10-Nov-16 68 BUY 85
150
13-Apr-17 70 BUY 83
130 25-May-17 77 BUY 98
110 10-Aug-17 75 BUY 98
90
6-Oct-17 108 NEU 98
13-Nov-17 117 NEU 112
70
50
Rating Definitions
30
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Dec-16

Oct-17
Aug-17
Apr-17
Nov-16

Jan-17

Nov-17
Feb-17

Sep-17
May-17

Jun-17

Jul-17
Mar-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

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 SANGHI INDUSTRIES : RESULTS REVIEW 2QFY18

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Institutional Equities
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Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

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