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On the cusp of a turnaround

Sanghi Industries (SNGI) is expected to register a strong revenue growth with CAGR of 20-59 per cent in profits. The company is setting up a 1.2mt brownfield grinding capacity (PPC) at its existing location in Gujarat by March 2015 at low cost of Rs 550 million. This new capacity is being funded by internal accruals and will convert surplus clinker (which is currently exported at low margins) to PPC, thus helping the company raise its cement-to-clinker ratio to 87:13 from 76:24 at present.
SNGI has its own jetty and captive port, besides recently setting up two terminals at Navlakhi (Rajkot, Gujarat) and Dharamtar (Mumbai) for cheaper captive shipping of bulk cement cargo. With the new capacity expansion, it will sell higher volumes in Mumbai, which is a bulk cement market, enabling efficient use of sea routes for delivery at a lower freight cost. With the full ramp-up of coastal terminals, the ratio of road-to-sea transport is expected to reduce to 80:20 vs. 95:5 now, bringing in cost savings. The company’s valuations are cheap and it is trading at 30-40 per cent discount to mid-cap peers. We believe this discount is unwarranted as SNGI is on the cusp of a turnaround.
Religare Securities

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