Sanghi Industries in talks to raise Rs 500 crore from Kotak Special Situations Fund

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In a bid to improve its liquidity position, Gujarat-based cement manufacturer Sanghi Industries has entered advanced discussions with Kotak Special Situations Fund (KSSF) for a capital infusion of around Rs 500 crore, multiple industry sources told Moneycontrol.

“The management of Sanghi Industries has been working on a liquidity infusion plan for a while and now they are close to reaching an agreement with Kotak Special Situations Fund. The proposed deal is in the final leg,” said one of the persons cited above.

If the transaction fructifies, it would be the second investment of KSSF, which is managed by Kotak Investment Advisors Ltd, in the cement sector. It had earlier bet on Nuvoco Vistas, the cement business of the Nirma group.

“The intention of Sanghi Industries is to utilise part of the Rs 500 crore to reduce debt and the balance will be used for working capital and general corporate purposes,” a second person told Moneycontrol.

A third person confirmed the plan. All three persons quoted above spoke on the condition of anonymity.

Email queries, reminders and text messages sent to Sanghi Industries and Kotak Investment Advisors Ltd were unanswered at the time of publishing this article. This article will be updated as soon as we hear from the firms.

According to the fiscal 2022 annual report of Sanghi Industries, which has been hit by a high input cost environment (raw materials, fuel & power prices), the firm’s current liabilities stood at Rs 788 crore, while its non-current liabilities stood at Rs 1,192 crore. In the last three months, the firm's stock price has risen from Rs 36.8/share to Rs 56.4/share on October 18.

The KSSF, which adopts a sector-agnostic approach and primarily invests in distressed/stressed or special situation opportunities, had earlier bet on firms including Jindal Stainless, Omniactive, Prestige Group, Gold Plus Glass Industry and Sify’s Data Center business. Investments typically involve a combination of debt, equity and mezzanine instruments.

Recent rating action on Sanghi Industries

On September 23, India Ratings and Research downgraded Sanghi Industries Ltd’s Long Term Issuer Rating to ‘IND BB+' from ‘IND BBB’ and placed the ratings on Ratings Watch Negative.

“Management has been working on various measures to infuse significant funds into the company, which were likely to be completed by August 2022 (after a delay from 1QFY23). The liquidity infusion is likely to be used for the prepayment of high-cost debt and improve its working capital levels to aid the increasing scale of operations. The delay in fruition of these plans coupled with a lower-than-expected internal accruals leaves limited liquidity headroom. While the company is tying up funds, the infusion is likely only by mid-October as per management,” India Ratings and Research had said.

A closer look at Sanghi Industries 

Sanghi is one of the leading cement manufacturers from Western India and has two plants of 6.6 million metric tonne per annum (mmtpa) clinker capacity and 6.1 mmtpa cement capacity. It also has a 130-megawatt captive thermal power plant, captive mines, a water de-salination facility and a captive port in Kutch, which can handle 1 mmtpa of cargo. Sanghi sells ordinary portland, portland pozzolana and portland slag cement in Gujarat, Rajasthan, Maharashtra and Kerala and international markets of the Middle East, Africa and the Indian sub-continent.

During the financial year ended March 31, 2022, the firm’s total revenue rose to Rs 1,140.52 crore compared to Rs 948.17 crore in the previous year. Profit after tax for the year fell to Rs 40.62 crore as against Rs 78.19 crore a year ago.