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Sanghi Industries Ltd

| Q2 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤3rd Nov 25

Summary : Ambuja Cements delivered robust Q2FY26 performance with strong volume growth and cost reductions, driven by strategic capacity expansion, digital transformation, and integration of acquired assets, maintaining a bullish outlook despite project delays and working capital increases.

Management Perspective positive : Management repeatedly expressed 'jubilant' and 'bullish' sentiment, highlighting 'robust performance,' 'strong momentum,' and 'healthy improvement' in various metrics, despite acknowledging challenges like monsoons and acquired asset integration.

Concall Report Analysis & Insights

Business Overview

  1. Achieved highest ever sales volume of 16.6 million tons in Q2, up 20% Y-on-Y.
  2. EBITDA reached INR1,060 per metric ton, a 32% Y-on-Y jump, with 19.2% margin.
  3. Total costs reduced by 5% Y-on-Y, driven by lower kiln fuel cost.
  4. Profit after tax increased by 364% to INR2,302 crores, including a one-time tax write-back.
  5. Company remains debt-free with CRISIL AAA Stable and A1+ ratings.

Future Growth Prospects

  1. Targeting 155 MTPA capacity by FY '28, up from current 107 MTPA.
  2. Aiming for total cost reduction to INR4,000 per ton by March '26, then INR3,650 by March '28.
  3. Debottlenecking initiatives will add 15 million tons capacity at low capex of $48 per ton.
  4. Green Power share to increase to 60% by FY '28, reducing unit cost by INR1.5.
  5. Launching CINOC (Cement Intelligent Network Operations Center) for digital transformation and efficiency.

Management Insights

  1. "This quarter has been noteworthy for the cement industry."
  2. "Our group synergies and efficiency measures have started yielding results."
  3. "We now revise our target capacity from 140 to 155 by FY '28."
  4. "Cement demand, I remain bullish. Overall yearly target remains between 7% to 8%."
  5. "I'm optimistic to achieve for this acquired assets also healthier and now that investments have gone into the maintenance and all."

Signs of Skepticism

  1. Delays in commissioning six projects were attributed to monsoons, but the impact on future timelines needs monitoring.
  2. Explanation for increased working capital (receivables, inventory) could be further detailed regarding specific drivers.
  3. The full impact and timeline for digital initiatives (CINOC, AI) to yield 'real improvements' are expected from the next financial year.
  4. Clinker debottlenecking details were not fully comprehensive, with some aspects to be shared separately.

Risk Factors

  1. Prolonged monsoons and flood-like situations caused project commissioning delays.
  2. Increased working capital due to higher receivables from B2B sales and increased inventory.
  3. Acquired assets (Penna, Sanghi) currently have lower EBITDA margins, requiring improvement.
  4. Capacity utilization for acquired assets is lower than base capacity assets.

Good To Know

  1. Adani Cements is investing in R&D and technologies to improve ESG scores.
  2. Water positive 12x and plastic negative status, with significant tree plantations.
  3. Targeting INR200-225 crores additional income from positive Carbon Credits.
  4. Average plant age is projected to fall by almost 50% by FY '28 due to new assets.
  5. Integration of Penna and Orient Cement sales under Ambuja and ACC brands has been well received.

Key Drivers

  1. Capacity expansion to 155 MTPA.
  2. Significant cost reduction targets.
  3. Increased premium product share.
  4. Enhanced operational efficiencies.

Key Analyst Discussions

Competitive Environment

  1. Sales volume grew 20% Y-on-Y, significantly outpacing the industry average of 4%.
  2. Market share increased by 1% to 16.6% and targets 20-22% by FY '28.
  3. Acquired assets like Orient show good profitability, while Penna and Sanghi are improving.
  4. Company aims for double-digit volume growth in coming quarters.
  5. Adani brand association is showing positive trends in top-of-the-mind awareness.

Market Trends & Consumer Behavior

  1. Improved economic sentiments and higher public/private sector investments are driving demand.
  2. GST reduction from 28% to 18% is expected to boost demand for premium cement.
  3. Premium products constitute 35% of total trade sales, with 28% Y-on-Y growth in premium cement sales.
  4. Strong demand uptick observed in Western and Southern markets where acquired assets are located.

Financial Highlights

  1. Other expenses reduced due to improved synergies, efficiency gains, and analytics-driven marketing.
  2. Working capital increased due to higher B2B receivables and increased finished goods/spares inventory.
  3. Kiln fuel cost is lowest among peers at INR1.60 per 1,000-kilo calories (including AFR).
  4. Consolidated EBITDA per ton is INR1,060, with acquired assets expected to improve margins.
  5. Capex program for the first half was INR2,800 crores, with INR1,400 crores in Q2.

Product Composition

  1. Installing 13 blenders to optimize product mix and increase premium cement share.
  2. RMC business is ramping up, with cement consumption in RMX expected to reach 5% by FY '28.
  3. Current cement consumption in RMC is around 2%, targeting 5% by FY '28.
  4. Premium cement share is a key focus for improved realizations.

Strategic Considerations

  1. Debottlenecking initiatives will add 15 million tons capacity at a low capex of $48 per ton.
  2. Clinker capacity target revised from 84 million to 96 million tons by FY '28, adding three new kilns.
  3. Logistics debottlenecking will unlock 3 million tons capacity and reduce lead distance by 50 km.
  4. New capacities utilize latest technologies, improving heat and power consumption efficiency.
  5. Average age of employees reduced to 38 years, with focus on training and productivity improvement.