Release Date: July 31, 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) achieved a revenue of INR8,311 crores, driven by strong market management and expansion of the dealer network.
- The company has increased its cement capacity by 32% since acquisition, translating to 21.4 million tonnes.
- Energy costs declined by 13% due to better fuel management, resulting in a reduction in fuel costs by 17%.
- Transportation costs decreased by 8% due to footprint optimization and increased direct dispatches to customers.
- Sanghi Industries Ltd (BOM:526521) remains debt-free, with capacity growth funded through internal accruals and operating cash flows.
Negative Points
- The company experienced a decline in cement prices, impacting EBITDA per tonne.
- There were capacity constraints in the East and South regions, affecting volume growth.
- High maintenance costs are expected in the second quarter due to scheduled plant shutdowns.
- The company faces challenges in achieving its target of reducing operating costs to INR3,650 per tonne by FY28 due to inflation and other factors.
- The integration of Penna Cement and other acquisitions may pose operational challenges and require significant investment.
Q & A Highlights
Q: What's the bifurcation of our cement supply to private sector and public sector?
A: At an industry level, about 64-65% of cement is consumed for housing, 23-24% for infrastructure (largely government but also private BOT projects), and 15% for commercial institutions (mostly private). For Sanghi, 75-80% is private sector supply and 20-25% is public sector.
Q: Is the 1000 MW green power project delayed? What is the CapEx distribution for FY25 and FY26?
A: The June 25 target remains firm. The first 200 MW is coming in August, 650 MW by March 25, and another 150 MW by May 25. The total CapEx for the 1000 MW initiative is INR 6000 crore, with INR 1500 crore already invested and the remaining INR 4500 crore to be incurred over the next 12 months.
Q: What is the status of the Penna acquisition and its impact on numbers?
A: The acquisition is in advanced stages and expected to close in a fortnight. Integration benefits will be seen in Q2, with full benefits in Q3. Ambuja, ACC, and Penna brands will be used strategically in South India.
Q: What do you make of consolidation in the cement industry?
A: The share of top five companies has increased to 60% from 45% in 2018. Adani Group is pursuing both organic and inorganic growth, acquiring assets like Sanghi, Asian, Tuticorin, and Penna. The focus is on structured expansion with a target of less than $80 per tonne for new growth.
Q: How will limestone lease expiries by 2030 affect the industry and Sanghi?
A: Sanghi has 19 leases expiring by 2030, with only 11 remaining by then. Alternate plans are in place, and the right of first refusal rests with the current player. Industry-wide, representations have been made to the government for relaxation of norms.
Q: When will Sanghi optimize its capacity utilization?
A: Sanghi's refurbishment program will complete by mid-November, with full utilization expected in the last quarter of FY25. Investments in jetty and shipping infrastructure will follow.
Q: What is the strategy for ACC, Sanghi, and Penna as listed subsidiaries?
A: Currently, there are no plans to take ACC or Sanghi private. Penna will become a wholly-owned subsidiary of Ambuja. The cement business is managed as one organization, leveraging synergies through the MSA.
Q: Why invest heavily in renewable power instead of buying it from outside?
A: The investment in green power aligns with ESG goals and aims to reduce CO2 emissions. It also provides a cost benefit of INR 100 per tonne, improving EBITDA and overall performance.
Q: How will the target of INR 3,650 operating cost by FY28 be achieved?
A: The target includes a reduction of INR 550 from the current cost of INR 4,184. This will come from savings in freight, power and fuel, raw materials, and other expenses. The target is independent of price fluctuations.
Q: What is the expected CapEx for the full year?
A: The full-year CapEx target is INR 10,000 crore, including growth and maintenance CapEx. After factoring in the Penna acquisition and other CapEx, the expected year-end cash and cash equivalent will be around INR 10,000 crore.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
