* Total Volumes during the quarter declined sharply by 32.3% y/y – at 0.48 MT due to Coronavirus inflicted lockdown measures and maintenance shutdown. Similarly, volumes for FY20 de‐grew by ~26% y/y to 1.97 MT with utilization level lingering around 48%.
* Operating performance: Slump in volumes was offset by robust pricing scenario in Gujarat during Q4FY20 (NSR +19% y/y) and softer energy costs. Accordingly, EBITDA/te of SNGI stood at Rs 1,069 – sturdy growth of 65% y/y while absolute EBITDA grew by ~12% to Rs 514 mn.
* Capex: Total outgo for SNGI was ~Rs 6 bn during FY20 towards completion of clinker and grinding unit of Kutch – expected to be commissioned by Q2FY21.
* Leverage position: Total Net debt/EBITDA of company stood at alarming levels of 6.24x as of Mar’20 vis‐à‐vis ~3.92x in FY19.
* Post commissioning of Kutch grinding unit, capacity of SNGI will increase by ~50% to 6 MTPA. However, we foresee serious challenges w.r.t ramping up the grinding unit due to heightened competitive intensity and modest demand growth in Gujarat market while volumes would be driven by clinker exports (margin dilutive). Accordingly, we expect utilization levels to remain subdued – at 48% by FY22.
* Going ahead, we do not expect debt repayment of Rs 1.2 bn in FY21E to be a challenge for SNGI as liquidation of NWC and surge in clinker exports would aid higher cash flow generation. However, inability to ramp up new plant would ensure a precarious balance sheet over the long term.
* In our bull case scenario, despite factoring in volume/EBITDA CAGR of 22.1%/14.1% over FY20‐FY22 (base of volume is weak due to two maintenance shutdowns in FY20), we expect net debt/EBITDA to hover at elevated levels of 4.4x by FY22.
* Currently SNGI is trading at EV/EBITDA at ~7x and EV/te of $41 on 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).
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.
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