Sanghi Industries - Q1FY21 Result Update - YES Securities

SELL (Target Rs16.2, Downside 33%)

Total volumes of SNGI in Q1FY21 declined sharply by 46.3% y/y and stood at 0.32 MT. Covid scenario during the quarter was worse in Western market and accordingly volume underperformance for SNGI vis-à-vis PAN India demand de-growth was expected. However, the company has relatively underperformed as compared to its Gujarat based peers as well. This further increases our skepticism w.r.t ability to ramp-up incremental capacity given the heightened competitive intensity and limited scope for demand growth in Gujarat market. Our volume and EBITDA estimates remain intact and we factor in volume/EBITDA CAGR of 22.1%/14.1% over FY20-FY22 as our bull case assumptions (base of volume is weak due to two maintenance shutdowns in FY20). Further, we expect net debt/EBITDA to hover at elevated levels of 4.4x by FY22E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 16.2/share (implied EV/EBITDA multiple of 6x on FY22E).

Key risk to our call: In a scenario of SNGI takeover by a PAN India player, there can be significant upside potential as asset valuation of company is subdued currently.

Shares of SANGHI INDUSTRIES LTD. was last trading in BSE at Rs.24.75 as compared to the previous close of Rs. 24.4. The total number of shares traded during the day was 68017 in over 326 trades.

The stock hit an intraday high of Rs. 25.75 and intraday low of 24.25. The net turnover during the day was Rs. 1701485.

Source : Equity Bulls

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