SANGHVI MOVERS LTD : ENJOYS DEEPER MOAT !!!

Scrip Code: 530073 / SANGHVIMOV

CMP:  Rs. 40.55; Buy at current levels.

Short Term Target - Rs. 45; Medium to Long Term Target – Rs. 55; STOP LOSS – Rs. 48.00; Market Cap: Rs. 175.53 Cr; 52 Week High/Low: Rs. 102.25 / Rs. 35.50.

Total Shares: 4,32,88,000 shares; Promoters : 2,01,32,444 shares – 46.51 %; Total Public holding : 2,31,55,556 shares – 53.49 %; Book Value: Rs. 153.26; Face Value: Rs. 2.00; EPS: Rs. 0.62; Dividend: 50.00 % ; P/E: 65.40 times; Ind. P/E: 6.32; EV/EBITDA: 3.16

Total Debt: Rs. 353.48 Cr; Enterprise Value: Rs. 540.32 Cr.

SANGHVI MOVERS LTD: The Company was founded in 1989 and is based in Pune, India. Sanghvi Movers Limited operates as a crane rental services company. It’s a major player in Equipment rental & leasing sector in India and other parts of Asia. It provides heavy lift, plant erection and maintenance services for various large scale projects. The company also offers over dimensional, heavy, and bulk cargo transportation services. It operates a fleet of 400 medium to large size hydraulic truck mounted telescopic and lattice boom cranes and crawler cranes with lifting capacity ranging from 20 MT to 800 MT; and 132 hydraulic multi axle modular trailers. In addition, the company also engages in the generation of power from windmills. It primarily serves power, cement, steel, refinery, metros, windmill, and metal sectors. The Company operates in two business segments: Operations of Cranes and Power Generation. It earns regular revenue from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka. The Company's clients include ACC Ltd, BGR Energy Systems Ltd, Birla Corporation Ltd, Electrosteels Ltd, Furnace Fabrica (India) Ltd, Jindal Steel & Power Ltd, Leitner Shriram Mfg Ltd, Neelachal ISPAT Nigam Ltd, Suzlon, Aditya Birla Group, TOYO, BHEL, Reliance, Vedanta Group, Siemens, Tata Steel, Enron power, Samsung and Gujarat Ambuja. Sanghvi Movers ltd is globally compared with Nippon Pallet Pool Company Ltd of Japan, Han Kook Capital Company Ltd of South Korea and with Nippan Rental Company Ltd of Japan.

Investment Rationale:

Sanghvi Movers is the 3rd largest crane services company in Asia and ranked seventh largest in the world. The company has a robust fleet of over 400 cranes, majority of which are above the 100 tonne category. Sanghvi Movers has an overall market share of about 45% and more than 80% market share in the 100 tonnes and above category. The company undertakes the implementation of turnkey projects and caters to 75% of the traditional power sector and 65% of the windmill sector’s crane requirement. The company has Crawler and truck mounted cranes and also has Hydraulic Multi Axle Modular Trailer. The company claims to have 98 % guaranteed machine availability with a timely deployment. The company has its owned state of the art Sanghvi Training Academy which provides high skills crane training programmes and produces highly skilled crane operators. Sanghvi Movers has 12 depots across the country to ensure timely deployment of cranes. The Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry despite having the second largest network of roads at 3.83 million km, the fourth largest rail network of 63000 km, 128 airports, 12 major ports, 1 trans-shipment port and 187 non major ports. Indian Logistics sector grew by 8 to 10 percent annually over the last decade. There are several factors which have favorably impacted the growth of the logistics industry, like the country’s tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. Exim trade volume of India is growing consistently from last decade hence India is set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012. India’s level of containerization is less than 25 % as against global average of 60 % - 70 %. An average time taken to clear import and export cargo at ports is about 19 days in India as against 3-4 days in Singapore. The trend towards containerization picked up in India in the last decade. Container traffic has seen a growth of 12 % CAGR in India from 2.5 million TEU in 2000-01 to 7.5 million TEU in 2010-11.

Outlook and Valuation:

Sanghvi Movers has a near monopolistic position in the high tonnage crane rental market in India. Company is a great proxy play to the improvement in Indian Infrastructure industry. The company is led by a strong entrepreneur C. Sanghvi and his professional team, company has been able to maintain its competitive advantages. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) expanding moats which is a very strong sign of a future Multi-bagger stock. Logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods, logistics encompasses all of these. A typical logistics framework mainly consists of physical supply, internal operations and physical distribution of goods and services. To put it more simple manner, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price/cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel. As said before the Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry and trade volume of India is growing consistently from last decade & hence India is all set to increase its share in global trade from less than 1 % now to about 1.6 % in 2013, and Sanghvi Movers is well equipped for that, also as Prime minster of India has now emphasized more on infrastructure development – Sanghvi Movers is a silent play to that. It is expected that the Sanghvi Movers EBITDA margin to be down 4.37 % yoy (slightly up qoq) chiefly from lower yields due to keener competition and discounts. Yields continue under pressure and are expected to be lower in FY14 from 2.86 % in FY12 because of intensifying competition. This leading domestic crane-hiring company provides hydraulic and crawler cranes to industries in infrastructure. The slowdown, however, in its target market (wind and power) would weigh on its results. Competition from foreign and domestic crane rental service players and lackluster investment in the infrastructure sector will keep the capacity utilisation and blended yield under pressure and affect the profitability in FY14E. There could be a re-rating of the stock only after a reversal trend in the capex cycle. Keener competition from foreign operators at lower rates and the slowdown in fresh investment have led to less planned capex for the next two years. The company has been struggling with delays in executing wind and power projects and the slowdown in steel and cement capacity expansions. Its cranes are operating at lower utilisation and yields, and it is grappling with bad-debt issues. With no capex for the next two years, debt would slide 50 % from its current consolidated debt of around Rs. 590 Cr. At the CMP of Rs. 40.55 the stock quotes at 4.71 x FY14E and 1.231x FY15E earnings. One can ‘BUY’ SANGHVI MOVERS with a short term target price of Rs. 45.00 and for Medium to Long term investment it could be a good buy for the target price of Rs. 55. 

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	450.50	339.20	337.90	351.60
NET PROFIT (₹ Cr)	101.80	40.90	37.30	45.80
EPS (₹)	23.50	9.50	8.60	10.60
PE (x)	2.80	6.90	7.50	6.10
P/BV (x)	0.40	0.40	0.40	0.40
EV/EBITDA (x)	4.30	3.50	3.00	2.40
ROE (%)	16.20	6.20	5.40	6.20
ROCE (%)	15.40	9.30	9.20	9.50

I would buy SANGHVI MOVERS LTD for Medium to Long term for target of Rs. 55 and for the shorter term it woud be Rs. 45.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 37.30 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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