Hello Sir,

Hope you are doing well.

I was recently reading about Sahyadri Industries.

Can you imagine, even in this bull run, the stock is down almost 60% from its highs of 840 odd levels and currently trading around 350.

I enjoy looking at such stocks because the idea is to allocate some part of the portfolio to contra picks which may end up doing well over the next 2-4 years.

Below, we have shared our notes from the Q1 FY 25 con-call of the company to understand the outlook for the business.

 

Update: As on 1st Sep’24, 22 medium/long term stock recommendations are under coverage. Out of the same, 9 are both Positive rated and in the buy zone.

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Sahyadri Industries – Notes from Q1 FY 25 concall

– Top-line Performance:

  • The top line dipped by 3.7% year-over-year, primarily due to a subdued rural economy
  • Persistent slowdown in on-ground demand, particularly from rural areas, has been noted for the last few quarters
  • The company has faced challenges in passing on price hikes to consumers due to sluggish demand, adding pressure on performance

– Seasonal Impact and Climatic Conditions:

  • The first quarter is typically strong for the company, but adverse climatic conditions, including excessive heat and early monsoons in the West, negatively impacted roofing product demand
  • Excessive heat caused breakages in roofing sheets, further affecting overall performance

– Non-Asbestos Products:

  • The value-added ratio for non-asbestos products stands at around 16%
  • Sales of non-asbestos products are continuously increasing, with their share rising to 18% in Q1 FY25 from 17% in Q1 FY24
  • The current non-asbestos market is split 50-50 between domestic and export sales

– Margin Decline:

  • Margins have dropped from over 18% to around 11% due to a substantial increase in raw material costs, exacerbated by factors such as the Ukraine war
  • Raw material costs have risen by 45%, but the ability to pass these costs onto the market has been limited to 5-8%
  • While margins have been impacted, efforts to reduce costs are ongoing, and further deterioration in margins is not expected. Raw material prices are expected to stabilize

– Capacity Utilization:

  • The Perundurai plant operations have stabilized, with capacity utilization levels gradually increasing
  • Overall capacity utilization stood at 89% in Q1 FY25
  • Typically, Q2 and Q3 see reduced capacity utilization, while Q4 and Q1 generally show higher utilization, averaging between 70% and 80%

– CAPEX Plans:

  • The Wada plant is expected to be operational by Q4 FY26, and the Odisha plant by Q4 FY28, with INR 42 crores already spent on the Wada plant
  • These are non-asbestos plants
  • Once both plants are fully operational, the overall potential of the company would be 1000 crore sales

– Balance Sheet:

  • The company reduced its debt by INR 31 crores during the quarter
  • Net debt stood at INR 46 crores as of June 30th

– Guidance:

  • The company aims to become a pan-India player within three to five years by expanding into new geographies
  • Top-line growth is expected to be around 3-4% higher than last year, driven by improved capacity utilization, as no new capacity is being added this year
  • FY25 total revenue is projected to be in the range of INR 625 to INR 675 crores

(End)

 

Disclaimer: This is not a recommendation to buy/sell Sahyadri Industries. The securities quoted are for illustration only and are not recommendatory.

 

Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/

 

SEBI Research Analyst Registration No. INH100001690

BSE Enlistment No. 5114
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Name: Ekansh Mittal     Email Id: [email protected]    Ph: +91 727 5050062

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