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 |
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