CMP:
Rs. 220.70; Market Cap: Rs. 955.63 Cr; 52 Week High/Low: Rs. 376.00 / Rs. 197.00. Total
Shares: 4,32,88,000 shares; Promoters : 2,02,95,129 shares –46.88 %; Total
Public holding : 2,29,92,871 shares – 53.12 %; Book Value: Rs. 173.22; Face Value: Rs. 2.00; EPS: Rs.
23.98; Dividend: 150.00 % ; P/E: 9.20 times; Ind. P/E:
24.76; EV/EBITDA: 4.29 times. Total
Debt: Rs. 607.02 Cr; Enterprise Value: Rs. 1,548. 18 Cr.
SANGHVI MOVERS
LTD: The Company was founded on November 3, 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 gave last split in the face value
of its shares from Rs. 10 to Rs. 2 on 29 May 2007 and has not announced any
bonus so far. 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 locally compared with Crown lifters, Sancia Global
infrastructure Ltd, 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 performance of the Sanghvi is dependent on the Indian Economy, more
particularly investments in infrastructure and core sector of the economy both
by private as well as public sector undertakings. According to the provisional
estimates released by the Ministry of Statistics, the Annual growth rate for
financial year 2014-15 of Gross Domestic Product (GDP) was seen to improve to
7.3 % as against 4.9 % in the previous year. It is projected to reach 8 %
growth rate in the next fiscal year (2015-16), soon it is also expected that
the India's growth rate will outpace that of China, Japan and Germany combined
as projected by International Monetary Fund (IMF). Control on price rise
continued and remarkable downfall in inflation was noted, with wholesale price
index (WPI) falling at five year low of 0.11 in December 2014 in contrast to
6.40 in December 2013. The Central Government's emphasis on the renewable
energy more particularly on wind power generation and solar energy will bound
to increase the demand for the crane rental business. In view of the increased
investments in the renewable energy sector and upcoming projects in refinery
and gas, cement, power and steel sector, the company expects increase in demand
and rental for the cranes. Sanghvi Movers Limited has been providing heavy
lift, plant erection and maintenance services to various large scale projects.
The Company has maintained a good track record in terms of effective deployment
of cranes at competitive rates with due regard to time schedule as well as
safety and efficiency in operations. The growth of crane rental business is
constrained due to higher capital cost may result in availability of suitable
cranes as per market demand. There is a concern for safety of cranes at work
sites. The introduction of GST may result into simplified tax regime. The
Company's operations may get affected on account of increase in competition in
crane hiring business, delay in receivables. The Company has concentrated its
fleet of cranes more on heavy duty cranes i.e. cranes above 100 Tons. At
present more than 90 % of gross block of cranes is in 100 MT & above.
Obviously, more than 90 % of the Company's turnover is contributed by higher
tonnage cranes. The current order book position for the
company stands at Rs. 250 Cr and the company is expecting that the fleet
utilization would be around 80-82 % during H2FY17E. It has planned for capex to
the tune of Rs. 189.2 Cr during FY17E and has placed a purchase order for import
of 5 Nos. New Terex Cranes with Capacity of 650 MT, some Derrick attachments
and boom inserts for cranes. These cranes have been bought under trade in
agreement with Terex Global GmbH which will buy 5 Nos. used Terex Demag CC
2400-1 Cranes from the company at an aggregate value of Rs. 53.33 Cr. Hence,
the net capex for Cranes and allied attachments would be around Rs. 136 Cr. In
addition to this, the company has already bought office premises in BKC, Mumbai
for a sum of Rs. 17 Cr. Hence, the total capex for FY17E would be Rs. 153 Cr. Company’s 2QFY17 financial performance
was impacted by the seasonal spillover caused on account of the de-hiring of
cranes getting pushed to 2QFY17. While this impacted the utilisation rates at 66
% in 2QFY17 vs. 79 % in 1QFY17, the gross block yields remained stable at 2.77
% vs. 2.80 % for 1QFY17. With a residual order book position of Rs. 2.5 bn for
the next 6 months and already receiving work orders for its new +650MT, it is
expected that Sanghvi mover’s fleet utilisation rates will improve to 82 % to 83
% in 2HFY17, with its gross block yields remaining healthy at 2.75 % 2.80 %. Despite
the 1HFY17 disappointment, the management continues to see good traction in the
wind power space and expects a conservative 3,500-4,000MW of wind asset
creation over FY17-19E. Additionally, it is also optimistic about pick-up in
ordering activity from the thermal power space. Despite
the tepid financial performance it is expected that Sanghvi movers to report
FCF of Rs. 2.2bn in FY19E. With no major capex plans, company plans to utilise
the cash generated from operations to retire its debt, which would consequently
lead to interest cost saving. Company will repay Rs. 3.3 bn of debt over
FY17-19E. Incrementally, company could also reward its shareholders in the form
of higher dividends or share buybacks.
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. Sanghvi Movers
Limited is the Largest Crane Hiring Company in India and 6th Largest
in the World, as per rankings from Cranes International. 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. On
financial side, Sanghvi reported revenue growth of 7.5 % registering Rs. 249.7
Cr during H1FY17 compared to H1FY16 of Rs. 232.2 Cr. Wind Mill continued to be
the major revenue contributor and stood at 63 % followed by power at 15 %, refinery
& gas at 11 %, Steel & metal at 4 %, Cement at 2 % & Others at 5 %.
EBITDA stood at Rs. 153.2 Cr in H1FY17 compared to Rs. 151.4 Cr in H1FY16, with
EBITDA margins at 61.4 % in H1FY17 a drop of -3.84 % when compared to 65.2 % in
H1FY16. The drop in EBITDA margins was mainly on account of increased freight
& carrier charges during H1FY17. Increase in other income for H1FY17
includes gain of Rs. 1.5 Cr on investment in equity shares of Suzlon Energy
Limited. It also includes a sum of Rs. 1.9 Cr towards the interest received on
GJ RTO Tax refund and a sum of Rs. 70 lakhs towards profit on 3 cranes sold
during the six months. PAT for H1FY17 stood at Rs. 37.8 Cr compared to Rs. 45.00
Cr in H1FY16 witnessing a drop in the PAT margins from 15.1 % in H1FY17 by 4.26
% compared to 19.4 % in H1FY16. With a capped capex cycle, mostly in the wind power space, which
would drive SGM’s tepid revenue CAGR of around 6.6 % over FY16-19E, Utilisation
rates and average yields on gross block to remain between 75 % to 78 % and 2.75
% to 2.85 % over FY17-19E, Improving Net Working Capital cycle from 265 days in
FY14 to 108 in FY18E, Strong FCF generation of Rs. 2.2bn in FY19E, which will
largely be utilised towards debt repayment and FCF yield of 19.3 % in FY19E
Sanghvi movers can gain premium in valuation. Also with increasing focus on
optimum utilsation, strong working capital management and ace promoter acumen,
Sanghvi Movers is well positioned to withstand any cyclical slowdown in the
crane hiring business. At the current market price of Rs. 220.70, the stock is trading at a PE of 7.11 x FY17E and 6.14 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 31.00 in FY17E and Rs. 35.90 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY15 | FY16 | FY17E | FY18E |
|---|---|---|---|---|
| SALES (₹ Crs) | 308.20 | 531.50 | 628.00 | 676.60 |
| NET PROFIT (₹ Cr) | 8.10 | 116.90 | 134.10 | 155.20 |
| EPS (₹) | 1.90 | 27.00 | 31.00 | 35.90 |
| PE (x) | 146.50 | 10.60 | 7.10 | 6.10 |
| P/BV (x) | 1.80 | 1.60 | 1.10 | 0.90 |
| EV/EBITDA (x) | 8.30 | 5.20 | 3.60 | 3.20 |
| ROE (%) | 1.20 | 16.70 | 16.60 | 16.50 |
| ROCE (%) | 2.20 | 12.90 | 12.60 | 12.90 |
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 % on every purchase. (Why Strict stop loss of 8 % ?) - 
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Disclaimer:
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