Motilal Oswal Says This Cement Maker May Deserve Re-Rating
Motilal Oswal initiates coverage on Sanghi Industries with a ‘buy’ rating and a target price of Rs 157.
Shares of Sanghi Industries Ltd. rose to a record on Wednesday while rest of its cement-maker peers declined after a local brokerage rated it a ‘Buy’.
The company’s stock rose 10 percent, the most since July, to Rs 139.95 apiece.
Motilal Oswal Securities Ltd. put a price target of Rs 157 a share on it, implying a potential upside of over 20 percent. The brokerage cited strong reserves and an efficient production value chain as the reason.
Low-Cost Advantage
The core strength of the Andhra Pradesh-based company lies in its one billion tonnes of quality marine limestone reserves, Motilal Oswal said. That not only lowers the cost of production but also the cost of mining. Limestone mines have surface deposits and the cement maker can opt for cheaper mining techniques rather than blasting, the report said.
Re-Rating Candidate?
The company can be considered for re-rating if it expands its capacity to 8.4 million tonnes from 4.1 MT over the next 30 months, Motilal Oswal said.
Its operating income is expected to rise at an annualised rate of 33 percent in three years to March 2020. A rising operating income will lead to a 60 percent compounded annual growth in net profit, the brokerage said. That will improve the company’s return on equity by 11 percentage points to 16.8 percent.
Seven of the nine analysts tracked by Bloomberg have a ‘Buy’ rating on the stock, with one each recommending a ‘Buy’ and ‘Sell’.