Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sanghi Industries Ltd (BOM:526521, Financial) reported a revenue increase of 12% year-over-year, driven by strong market management and expansion of the dealer network.
- Operational costs per ton declined by 9%, attributed to a 13% reduction in energy costs and an 8% decrease in transportation costs.
- EBITDA grew by 37% to INR1,699 crores, with EBITDA per ton increasing by 17% to INR1,026.
- The company has secured 42 million tons of new limestone reserves, bringing the total to 7.8 billion tons.
- Sanghi Industries Ltd (BOM:526521) plans to increase its grinding capacity to 140 million tons by FY28, with significant investments in new facilities and efficiency improvements.
Negative Points
- The company faces uncertainties related to environmental clearances for new clinker facilities, which could delay expansion plans.
- Despite improvements, the company's fuel costs remain a significant expense, with ongoing efforts required to secure more cost-effective sources.
- The logistics cost, although reduced, still represents a substantial portion of operational expenses, necessitating further optimization.
- The integration of Sanghi Industries Ltd (BOM:526521) into the broader Adani Group's cement business may present challenges in aligning operational efficiencies and market strategies.
- The company's ambitious capacity expansion plans require substantial capital investment, which could strain financial resources if not managed effectively.
Q & A Highlights
Q: Can you provide more details on the capacity expansion plans, particularly for clinker?
A: We are ready to place orders for three new clinker lines, one each in the West, North, and South regions, pending environmental clearances (EC). These lines will add 12 million tonnes of clinker capacity, which can produce over 20 million tonnes of cement. Our target is to reach 82 million tonnes of clinker capacity by FY28, with 80% of this being brownfield expansions.
Q: What is the overall game plan for Sanghi Industries following the recent fund-raising announcement?
A: Sanghi has a strategic location that fits well within our ecosystem. We plan to refurbish the existing kilns to run at full capacity by H2 FY25 and add two more kilns of 4 million tonnes each in the future. This will make Sanghi one of the largest and lowest-cost plants. The recent fund-raising is aimed at improving financial efficiency and supporting these growth plans.
Q: How should we look at Sanghi's profitability and volume targets for FY25?
A: We are targeting a minimum of 5 million tonnes from Sanghi in FY25. The Master Supply Agreement (MSA) with Sanghi ensures a 9% margin for them, with the remaining margin retained by Ambuja and ACC. This structure will help in maintaining profitability while leveraging Sanghi's capacity.
Q: Given the industry's focus on cost-saving initiatives, will margin expansion be led by cost control rather than price increases?
A: While cost control is a significant focus, especially with initiatives like waste heat recovery and green energy investments, pricing stability is also expected. We believe that post-elections, there will be a robust demand, and cement prices should remain stable or improve, supported by strong GDP growth and infrastructure projects.
Q: Can you break down the expected cost reductions of INR500 per tonne by FY28?
A: Major cost reductions will come from coal mines, long-term procurement agreements, investments in railway wagons, and green energy initiatives. For example, our power cost is expected to reduce from INR6.75 to about INR4.50 per unit, contributing significantly to the overall cost reduction. Logistics optimization and efficiency improvements will also play a crucial role.
Q: What is the strategy for increasing market share to 20% by FY28?
A: We plan to achieve this through a combination of organic and inorganic growth, targeting 140 million tonnes of capacity. Our strong dealer network, brand strength, and strategic capacity additions in undersupplied regions will help us grow faster than the industry average without disrupting market prices.
Q: How do you plan to manage clinker and cement logistics, especially with the new grinding units in South India?
A: We are leveraging our existing port infrastructure and new acquisitions like the Tuticorin grinding unit. Clinker from Sanghi will be shipped to Tuticorin, and we have secured low-cost fly ash from nearby power plants. This strategy ensures efficient and cost-effective logistics for our South India operations.
Q: What are the long-term plans for the corporate structure of Ambuja, ACC, and Sanghi?
A: While we currently operate as three separate legal entities, we function as one management team to ensure sharp focus and quick execution. Any future changes to the corporate structure will be communicated transparently as per regulatory requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
