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8-215 11-215 2-216 5-216 8-216 11-216 2-217 5-217 8-217 11-217 2-218 5-218 8-218 11-218 Result Update Institutional Research November 19, 218 Sanghi Industries Result Update Subdued revenue growth due to sluggish realization despite volumes The company posted a revenue of INR 244cr for the quarter, up by 18.7% as a sharp increase in volumes offset a dip in realization (-8.4% YoY to INR 3938/ton). Total sales volume for the quarter stood at.62mt up by ~3% YoY (from.48mt), driven by the demand growth in its key markets which stood at 1-13%. There a marginal loss in volume due to the reduced availability of coastal shipping to Mumbai in the monsoon season. Cost escalation impacts EBITDA/Ton EBITDA/Ton for the quarter stood at INR 523 down by 47% YoY (from INR 976) and 18% QoQ (from INR 638) due to higher power and fuel costs (up by 31% YoY to INR 1251/ton), as well as raw material costs (up by 14% YoY to INR 24/ton). Fuel costs rose dramatically, due to the unavailability of lignite, leading to a change in the fuel mix. Currency depreciation further increased costs of international coal leading to an overall increase in operating costs to INR 3415/ton (up by 2.7% YoY from INR 3325/ton) Estimated capex is on track The company has completed 25% of civil work and has ordered all the equipment in the ongoing capacity expansion to 8.1mt. The new capacity addition is expected to be commissioned by Q1FY21. Valuations Although the company witnessed a subdued quarter, the company continues to be one of the lowest variable-cost producers in the industry, due to its locational advantage (proximity to good quality marine limestone reserves) as well as captive thermal power plant of 63 MW. We expect the low availability of lignite to be a temporary issue and expect further savings to come from its CPP and WHRS plants. A higher proportion of PPC and slag cement in its sales mix, combined with the increased capacity (leading to a higher pricing power) will further improve the realization. With the government s increased focus on infrastructure development and affordable housing, we expect continued demand in its key markets of Gujarat, Maharashtra, Rajasthan and Kerala. At a CMP of INR 63, the company trades at a EV/EBITDA of 8.3 on FY2 earnings. However, the continued short-term issues prompts us to reduce our target price to INR 86 giving an upside of 37%. (i.e. valuing the stock at FY2E EV/Ton of $8/Ton, 9x FY2E EV/EBITDA) Downside Scenario Industry STRONG BUY Current Price 63 Price Target 86 37% Market Data Upside Scenario Cement Sensex 35457 Nifty 1682 Bloomberg Code Eq. Cap. (INR Crores) 251 Face Value (INR) 1 SNGI:IN 52-w H/L 58/144 Market Cap (INR Crores) 163 Valuation Data FY18 FY19E FY2E OPM 21.% 18.5% 19.4% NPM 9.1% 6.5% 7.5% P/E (x) 18. 22.3 34. EV/EBITDA (x) 9.2 9.5 8.3 EV/Ton ($) 75.4 68.5 65.6 3 25 2 15 1 5 Sanghi Industries Vs SENSEX Sanghi Shareholding Pattern * Sensex Sep 18 Jun 18 Sep 17 Promoters 65.72 65.72 74.98 FIIs 6.54 7.52.17 DIIs 1.57 9.35 4.6 Retail 17.17 17.41 2.79 1. 1. 1. (INR Crores) 9MFY16 FY17 FY18E FY19E FY2E Net Sales 776 998 126 188 12 Growth% -17% 28% 3% 6% 1% EBITDA 151 198 216 22 233 Growth% -4% 31% 9% -6% 15% Reported PAT 16 63 93 71 9 Growth% -48% 294% 48% 12% 7% EPS (INR) 3.5 2.9 3.7 2.8 3.6 Sales Volume (MT) 2.1 2.9 2.5 2.6 2.8 P/E (x) 17.3 23.9 18. 22.3 34. EV/EBITDA (x) 12.2 1.5 9.2 9.5 8.3 EV/Ton ($) 68.6 76. 75.4 68.5 65.6 * Read last page for disclaimer & rating rationale +91-22-6281-9649 research@ www.

Sanghi Industries - Result Update Page 2 Result Analysis (INR Crores) Y-o-Y Q-o-Q Net Sales 244 26 275 18.7% -11.2% COGS 15 1 12 47.4% 27.8% Employee Expenses 11 14 12-21.3% -11.8% Power and Fuel 78 46 82 69.3% -5.8% Freight and Forwarding 83 6 97 39.2% -13.9% Other Expenses 25 3 29-14.6% -11.8% Total Expenses 212 159 231 33.2% -8.5% EBITDA 32 47 43-3.6% -25.3% Depreciation 2 18 19 1.1% 1.9% Other Income 6 1 8 436.7% -26.% EBIT 19 3 32-37.2% -41.9% Finance Cost 17 19 12-11.3% 36.3% PBT 2 11 2-82.1% -9.1% Taxes % % Net Profit 2 11 2-82.1% -9.1% The company s net sales rose 18.7% y-o-y (from INR 26cr in ) but declined 11.2% q-o-q (from INR 275cr in ) to INR 244cr in. EBITDA for the company stood at INR 32cr down from INR 47cr (-31% Y-o-Y) and INR 43cr (-25% Q-o-Q) with EBITDA Margins at 13.3% as against 22.7% in and 15.8% in. The fall in margins was primarily due to higher power and fuel costs, as well as raw material costs. EBITDA/Ton for the quarter stood at INR 523 down from INR 976 (-46.5% Y-o-Y) in and INR 638 (-18% Q-o-Q) in. Total cement volumes for the quarter stood at.62mt. The cement volumes grew by 3% YoY and declined 8.8% QoQ. Reported PAT stood at INR 1.96cr which was down by 82% Y-o-Y (from INR 11cr) and 9% Q-o-Q (from INR 2cr). PAT Margins stood at.8%, down from 5.3% in and 7.2% in. Realization/ Ton has decreased to INR 3938, down from INR 431 (-8.4% Y-o-Y) and INR 442 (-2.6% Q-o-Q). Capacity Utilization stood at 61% for the quarter. (INR/Ton) Y-o-Y Q-o-Q Realization 3938 431 442-8.4% -2.6% RM Cost 24 211 171 13.6% 4.2% Employee Cost 173 284 178-39.3% -3.2% Power and Fuel 1251 958 121 3.5% 3.4% Freight and Forwarding 1345 1253 1424 7.3% -5.5% Other Expenditure 47 618 421-34.1% -3.2% Total Expenditure 3415 3325 344 2.7%.3% EBITDA 523 977 638-46.5% -18.% Key Concall Highlights The clinker production rose by 31% YoYand cement production by 3% YoYfor the quarter. The company recently introduced slag cement and reduced the clinker factor to 35% (39% in and 31% in ). The contribution of sales from the Gujarat market has reduced to 91% vs 93% in. Power and fuel costs were considerably higher for the quarter due to the reduced availability of lignite. As a result, fuel mix for firing the kilns was 1% lignite and 9% coal as compared to 27% lignite and 73% coal in. However, the availability has since been better (GMDC has started providing a higher allocation (25k-3k tons of lignite)), and the management is guiding the fuel mix to go up to 25-3%. International coal prices, which had gone up in have come down now; however currency depreciation still remains a concern. The cost of lignite and coal (per Kcal) for the quarter was at INR 1.5-1.1 and INR 1.15 respectively. There was a 5% loss in volume in Maharashtra on account of limited availability of coastal shipping due to monsoon. Due to introduction of slag cement raw material costs were higher as slag purchases were done leading to a higher substitution of limestone and clinker in the overall blended ratio. This has reduced the production cost overall, which is shown by other expenses reducing. +91-22-6281-9649 research@ www.

2854 282 2718 2613 3324 3325 2982 354 344 3415 91 826 52 541 968 977 848 688 638 523 INR INR % 65 47 42 42 66 47 62 41 43 32 INR Crores %.72.57.85.78.67.48.73.68.62 3752 3625 322 3154 4323 431 383 4227 442 3937 Million Tons.6 % INR Sanghi Industries - Result Update Page 3 17% of the power is sourced from WHRS and the rest through its thermal power plants. On a QoQ basis, the higher interest cost was on account of the capitalization of all past projects over the last 12 months. The capacity expansion project is expected to be commissioned by the end of Q4FY2. 25% of civil work and the ordering of all the major equipment have been completed. The sourcing of fly-ash has been improved as Tata and Adani power plants have improved their generation. The continuity of flyash has been assured through the commissioning of a fly-ash storage silo which keeps stock worth 5 days. The company s blended mix stands at 65% OPC and 35% blended cement. The trade mix stands at 35% trade and 65% non-trade. Last year, the total demand in Gujarat stood at 21.5mt which is projected to grow at 13% this year. The total capacity in Gujarat is ~27mt. The capex for this year is projected to be INR 5-6cr. Sales Volume 5 Realization/Ton.9.8.7.6.5.4.3.2.1 1% 1% 3% -7% -13% -16% -14% -23% 2% 29% 4% 3% 2% 1% % -1% -2% 45 4 35 3 25 2 15 1 5. -3% Sales Volume % Growth YoY Realization/Ton Margin fell due to higher logistics cost and higher power and fuel cost 7 3% 6 24.3% 22.8% 22.9% 22.7% 22.1% 25% 5 4 3 2 15.6% 17.2% 16.3% 15.8% 13.3% 2% 15% 1% 1 5% % EBITDA EBITDA Margin Increasing cost pressure due to lower availability of lignite and ships EBITDA/Ton 4 12 69% 8% 35 3 25 2 15 1 5 1 8 6 4 2-9% -39% 8% 6% 18% 27% -34% -46% 6% 4% 2% % -2% -4% -6% Total Expenditure/Ton EBITDA/Ton % Growth YoY +91-22-6281-9649 research@ www.

Sanghi Industries - Result Update Page 4 Profit & Loss (INR Crores) 9MFY16 FY17 FY18 FY19E FY2E Net sales 776.3 997.5 126.4 188.5 1199.6 COGS 69.4 78.9 66.4 71.1 77.6 Employee Expenses 38.2 52.5 53.9 59.3 65.3 Power and fuel 16.5 231. 242.8 267.7 297.9 Transportation cost 243.2 333.3 333. 367.2 4.7 Other Expenses 99.8 13.6 114.4 121.4 125.6 EBITDA 151.2 198.2 215.8 21.8 232.5 D&A 54. 73.1 72.4 81.8 88.6 Other income 1.7 2.2 22. 35. 35. EBIT 98.9 127.4 165.4 155. 178.9 Interest Expense 22.2 64.2 72.1 84. 89.1 PBT 76.8 63.1 93.3 71. 89.8 Tax.4.... Effective tax rate.5%.... PAT 76.4 63.1 93.3 71. 89.8 Exceptional Items 6.4.... Reported PAT 16. 63.1 93.3 71. 89.8 Balance Sheet (INR Crores) FY16 FY17 FY18 FY19E FY2E Share Capital 22. 22. 251. 251. 251. Reserves & Surplus 831. 894. 1,346.9 1,417.9 1,57.7 Shareholder's Funds 1,51. 1,114. 1,597.9 1,668.9 1,758.7 Long-term borrowings 471.2 459. 55.8 75.8 877.3 Other non-current liabilities 47.4 12.6 73.6 73.6 73.6 Long term provisions 54.4 48.1 38.3 38.3 38.3 Non-current liabilities 573. 69.7 662.8 862.8 989.3 Short-term borrowings 65.2 127.8 163. 163. 163. Trade payables 144. 142.1 132.7 146. 159.4 Other current liabilities 163.4 61.7 77.8 77.8 77.8 Short-term provisions 23.8 1.3 2.2 2.2 2.2 Current liabilities 396.4 341.9 393.7 47. 42.3 Total Equity and Liabilities 2,2.4 2,65.6 2,654.3 2,938.6 3,168.3 Gross Block 2,618. 2,749.1 3,8.2 3,28.2 3,48.2 Less: Accum. Depreciation 1,57.3 1,13.1 1,22.5 1,284.3 1,372.9 Net Fixed Assets 1,56.7 1,619. 1,82.3 1,923.9 2,35.3 Deferred Tax Assets 58.5 58.5 87.1 87.1 87.1 Other Non-current Assets 19.5. 33.7 33.7 33.7 Non-current Assets 1,638.7 1,677.5 1,923.1 2,442.3 2,978.5 Inventories 138.5 186.6 147.5 155.7 17. Trade receivables 18.4 23.9 32.1 29.8 32.9 Cash and cash equivalents 83. 16.3 428.1 584.8 685.7 Other current assets 141.8 161.3 123.7 123.7 123.7 Current Assets 381.7 388.1 731.3 894. 1,12.2 Total Assets 2,2.4 2,65.6 2,654.3 2,938.6 3,168.3 +91-22-6281-9649 research@ www.

Sanghi Industries - Result Update Page 5 Cash Flow (INR Crores) FY16 FY17 FY18E FY19E FY2E PBT 16.4 63. 93.4 71. 89.8 Depreciation & Amortization 54. 73.1 72.4 81.8 88.6 (Incr)/Decr in Working Capital -1.4-121.8-12. 7.3-3.9 Cash Flow from Operating 142.4 76. 221.8 244.2 263.6 (Incr)/ Decr in Gross PP&E -46.4-75.2-289.1-23.4-2. Cash Flow from Investing -123.5-7.9-684.4-23.4-2. (Decr)/Incr in Debt 187.6 2.1 14.5 2. 126.5 Finance costs -26.5-7.3-68.2-84. -89.1 Cash Flow from Financing -19. -68.2 462.9 116. 37.3 Incr/(Decr) in Balance Sheet Cash -.1 -.1.2 156.7 1.9 Cash at the Start of the Year.3.2.2.4 157.1 Cash at the End of the Year.3.2.2.4 157.1 Cash and Bank Balances 83. 16.3 428.1 584.8 685.7 RATIOS FY16 FY17 FY18E FY19E FY2E Particulars EBITDA/Ton 721.4 678.8 862.5 768.3 827.3 Sales Volume (Mn tons) 2.1 2.9 2.5 2.6 2.8 Growth (%) Total Sales 8.3% -1.6% -4.5% 3.5% 1.2% EBITDA 28.1% -1.7% 8.9% -6.5% 15.2% PAT 232.8% -38.% 47.8% -23.9% 26.5% Profitability (%) EBITDA Margin 19.5% 19.9% 21.% 18.5% 19.4% NPM 9.8% 6.3% 9.1% 6.5% 7.5% RoE (%) 7.3% 5.7% 5.8% 4.3% 5.1% RoCE (%) 5.9% 6.9% 6.8% 5.8% 6.1% Debt Ratios Net Debt/EBITDA 3.4 2.9 1.4 1.6 1.5 Net Debt/Equity.5.5.2.2.2 Interest Coverage 4.5 2. 2.3 1.8 2. Per share data / Valuation EPS (INR.) 3.5 2.9 3.7 2.8 3.6 BPS (INR.) 47.8 5.7 63.7 66.5 7.1 P/E (x) 17.3 23.9 18. 22.3 34. EV/EBITDA (x) 12.2 1.5 9.2 9.5 8.3 EV/Ton ($) 68.6 76. 75.4 68.5 65.6 +91-22-6281-9649 research@ www.

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Sanghi Industries - Result Update Page 7 Sanghi Industries Date CMP (INR) Target Price (INR) Recommendation November 19, 218 63 86 Strong Buy August 9, 218 87 14 Strong Buy Rating Legend Strong Buy More than 15% Buy 5% - 15% Hold 5% Disclaimer: This report has been prepared by Nalanda Securities Pvt. Ltd( NSPL ) and published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 214, for use by the recipient as information only and is not for circulation or public distribution. NSPL includes subsidiaries, group and associate companies, promoters, directors, employees and affiliates. This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from NSPL. 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