Target: ₹280
CMP: ₹257.5
The board has approved a preferential allotment of 1.32 crore shares to PI Opportunities Fund (PIOF), an affiliate of Premji Invest, at a price of ₹265/share, totalling ₹350 crore.
PIOF will work with the promoters and the company to set up a best-in-class governance process through the appointment of advisors/independent directors as appropriate, in consultation with other stakeholders to drive value creation for all the shareholders.
After the issuance, PIOF will own a 10.1 per cent stake in SGC, along with nominee on the board. Promoters' ownership will reduce to 45.2 per cent from 50.3 per cent currently.
The proceeds of the issue will be largely utilised for organic and inorganic expansions and general corporate purposes. In the last six years, SGC has raised capital worth ₹460 crore (excluding recent allotment to Premji Invest) through QIP and issued warrants to promoters to fund growth capex.
SGC has a historical track record of doubling its capacity every decade and has a target of increasing its capacity to 10 mt (from 8.3 mt currently) by FY25.
SGC net debt stood at ₹970 crore as of Dec'21. Accordingly, net-debt-to-EBITDA (on LTM basis) is likely to decline from 3.0x to 1.9x post the preferential allotment. Earlier, management indicated of peak net-debt-to-EBITDA ratio of 4x.
Accordingly, in an acquisition scenario, we estimate the potential size of the transaction to be up to ₹1,300-1,500 crore (likely 2-2.5mt capacity). Earlier, the company showed interest in acquiring Andhra Cement, which has clinker/cement capacity of 1.65mt/2.6mt in Andhra Pradesh.