STOCK IDEAS- Sanghvi Movers Limited

Sanghvi Movers Limited

BSE Code: 530073

NSE Code: SANGHVIMOV

Huge investments have been lined up for infrastructure development in our country both by government and private sector over the next 5-6 years. These developments would indirectly benefit companies providing infrastructure building equipments. Cranes being an essential component for infrastructure building, Sanghvi Movers Limited is all set to ride on growth in infrastructure sector.

Business:

Incorporated in the year 1989, Pune based Sanghvi Movers Limited (SML) is the largest crane hiring company in India, and 10th largest in the world. SML is primarily engaged in the business of providing hydraulic and crawler cranes to various industries in the infrastructure and core sector areas like power, refineries, steel, cement and chemicals.

Currently, SML has fleet of 295 medium to large sized heavy duty hydraulic truck mounted telescopic and lattice boom cranes and crawler cranes with lifting capacity of 20 tonnes to 800 tonnes. SML has set up 9 depots at strategic locations across India, in order to save on cost and time involved in mobilization thus increasing operational efficiency. It plans to add another 3-4 depots in the coming two years.

SML major revenues come from windmill sector (48% last year) which is expected to remain stable but its share will go down to around 35% this year. SML sees power sector as the driving force with 35% revenues expected for FY09 (17% last year) wherein it has got contracts from Lanco Udupi, Reliance power, BHEL & NTPC. “ We expect revenues from power sector to grow from 33% last quarter to 40-60% in future” said Mr. Chandrakant P. Sanghvi, the chairman and MD of SML. Cement and steel sectors being in heavy capacity expansion mode will also give a major thrust contributing 15% followed by refinery sector expected to contribute 10% revenues in FY09.

Keeping in mind the unprecedented demand coming from these sectors, SML has earmarked a capital expenditure of Rs 250 crore for FY09 which it may increase to Rs. 310 crore depending on business demand; to procure cranes of a range of tonnages. SML has plans to add 51 cranes (including 21 second hand cranes) in FY09 out of which it has already sourced 19 cranes ( 10 new cranes and 9 used ones) for Rs. 66 crore during Q1’ FY09. Almost all its cranes are imported from Germany, USA, UK, Japan, and Singapore.

SML has placed orders for the purchase of high capacity cranes – 4 new cranes in 600 Tonnes category, 6 cranes in 750 tonnes category to be delivered by Dec. 2009 and 1400 tonne crane expected to be delivered by mid-2009. These high-capacity cranes are used to build and erect nuclear plants, refineries and power stations and, thus, are likely to enjoy high utilization. Current average utilization is 85% and average realization per month (as percentage of gross block) is 2.5% for new cranes and 3.5% for used ones.

SML’s major clientele include Suzlon, Sterlite, Reliance Infrastructure, BHEL, Reliance Industries, JSW, NTPC, Ultratech Cement. Suzlon is the biggest customer, accounting for 38% of SML’s revenues with whom it has renewed its contract for two years and at a price increment of 15%-17% for the first year and 7% for the second year.

Investment rationale:

Thrust on infrastructure to spur demand for cranes: SML’s fortunes are directly related to industrial and infrastructure growth. SML provides services to core sectors like construction, power, refineries, steel and cement which are witnessing phenomenal growth and have lined up huge capex. Also government has unveiled several initiatives to boost infrastructure and facilitate investment into the sector, which would benefit SML due to increased demand.

Aggressive expansion plans undertaken by SML underlines its vision and belief in infrastructure growth story. SML has capex plans of Rs. 250 crore for FY09 and same amount for FY10. Out of current fleet of 295 cranes (gross block of Rs. 805 crore), more than 165 are above 100 tonne category where SML enjoys a market share of over 60-65 per cent; while the share goes to over 80 percent in the 250-tonne category. The company’s strategy is to deploy most of its cranes for medium to long-term basis, which provides stability to earnings, besides increasing utilisation rates.

SML's increased focus towards higher tonnage cranes also helps to differentiate from competitors in the unorganized sector operating primarily with lower tonnage cranes. The barriers to entry are also high in the high-capacity crane segment since most of the international equipment manufacturers are running full capacities and have delivery schedules booked for the next couple of years. The demand-supply gap in this category of cranes also favors SML in terms of getting attractive rentals.

Concerns:

Any slowdown in capex by user industries, delay in delivery of new cranes ordered, as well as non-availability of second hand cranes, will impact the growth potential. However, higher margins and effective price contracts would cushion the impact of any significant increase in financing and capital costs.

Valuations:

On the back of robust demand scenario, well-diversified user industry base, established clientele and its large equipment bank, SVL is expected to shown steady growth with revenues expected to grow at CAGR of 30% over FY08A-FY10E and net profit at CAGR of 30% between FY08-FY10E. Going forward, margins are likely to remain stable on account of addition of higher tonnage cranes and better utilization rates. At CMP of Rs 224.8, SML trades at attractive valuations of 10.51x & 7.91x its FY09E & FY10E earnings respectively and can be looked at current levels.

SALES AND PROFIT PROJECTIONS
		Annual	Annual	Annual
in Rs. Crore	Q1 FY09	FY08	FY09(E)	FY10(E)
Net sales	78.70	254.32	325.00	428.00
OP	58.93	186.13	237.25	314.58
PAT	22.70	72.75	92.63	123.05
Capital	8.66	8.66	8.66	8.66
EPS (Rs.)	5.24	17.75	21.39	28.42

PRICE AND VALUE RATIOS
Price	226.80	Date	1/8/2008
PE	10.60	PB	3.01
Book value per share	75.31	EV	1407.00
EV/EBIDTA	5.93	Mcap	981.77

SHAREHOLDING PATTERN
Share holding	Jun 2008
Promoter owned	44.43
Public owned	12.95
FIIs owned	5.12
Others owned	37.5