Sanghi Industries share price cracks 10% to hit lower circuit; here's why

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₹120.15 in morning trade on BSE on Thursday, January 18, extending the losses into the third consecutive session, on lingering concerns over profitability after its cement supply agreement with Ambuja Cements. Ambuja Cements acquired 54.51 per cent of Sanghi Industries.

After the acquisition, Sanghi Industries signed a Master Supply and Service Agreement (MSA) with Ambuja Cements and ACC wherein Ambuja and ACC will bulk purchase clinker and cement from the company at cost plus 10 per cent and sell them under Ambuja and ACC. This has raised concerns over the profitability of Sanghi Industries.

The company has called for an extraordinary general meeting on February 8 to seek approval for this supply agreement. "Sanghi Industries witnessed a notable decline of 10 per cent today after the company disclosed a supply agreement with Ambuja Cements and ACC, wherein the company will supply nearly its entire output to the aforementioned entities at a price reflecting a 10 per cent markup over production costs.

This has raised concerns over the potential impact on Sanghi's profitability," Parth Shah, a research analyst at StoxBox observed. "Industry benchmarks typically dictate the sale of cement at cost plus a 25-30 per cent markup, resulting in an operating profit per tonne ranging from ₹1,100-1,200.

The agreement, featuring a cost plus 10 per cent markup, would translate to a realisation of ₹360 per tonne for Sanghi, potentially signalling a compromise in terms of potential revenue compared to open-market sales," said Shah. Also Read: Adani Group-owned Ambuja Cement shares jump 7% after Sanghi Industries acquisition Mandar Bhojane, an equity research analyst at Choice Broking pointed out that Sanghi Industries stock, currently