Sanghvi Movers

8/14/2019 Sanghvi Movers

1/10

1For private circulation only

Company Profile

Registered Office

Survey No 92, Tathawade,

Taluka Mulshi,

Pune - 411033,

Maharashtra

Website: www.sanghvicranes.com

Chairman & MD : C P Sanghvi

Business Group: Sanghvi

Shareholding Pattern as on 31/12/2006

Major Holders %

Promoters 47.21

Institutional Investors 33.83

Other Investors 5.19

General Public 13.77

Stock Data

Market Cap (Rs crore) 523.3

Shares Outstanding (in crore) 0.82

52-week High (Rs) 913.0

52-week Low (Rs) 563.0

Avg. Volume 5,167

Absolute Return 3 mth (%) -13.8

Absolute Return 12 mth (%) -13.5

Sensex Return 3 mth (%) -4.3

Sensex Return 12 mth (%) 18.5

Siddhartha Khemka

[email protected]

ICICI Brokerage Services Limited,

2nd Floor, Stanrose House,Appasaheb Marathe Road,

Prabhadevi, Mumbai - 400 025

Performance Chart

ngineering - Turnkey Services

April 03, 2007

ICICIdirect Code: SANMOV

Company Report

For private circulation only

Sanghvi Movers, Indias largest crane-hiring company, is a proxy on the in-

dustrial and infrastructure boom in the country. Its aggressive ramp- up incrane capacity has coincided with a severe shortage of cranes globally, which

should lead to robust growth in revenue and profits over the next few years.

We initiate coverage on the company with an OUTPERFORMER rating.

INVESTMENT RATIONALE

Thrust on infrastructure to spur demand for cranes

Cranes are an essential component for infrastructure building. The

government has unveiled several initiatives to boost infrastructure and

investment amounting to Rs 1,400,000 crore have been planned over FY07-

12E. We believe this will create huge demand for cranes and Sanghvi

Movers will be a major beneficiary.

Dominant player in the crane-hiring business

Sanghvi enjoys a leadership position in the domestic crane-hiring market

with an almost 50% market share. It is Indias largest crane operator and

among the top 5 largest crane hiring companies in Asia. It is ranked 15th

globallyby Cranes International, a UK based magazine tracking the glo-

bal crane providers.

Aggressive ramp up in crane capacity

To capitalise on the rising demand, the company has been adding capaci-

ties and ramping-up its fleet size. It has lined up capex of Rs 330 crore forFY07-08E, to further boost its fleet by another 60-65 cranes. Of this it has

completed expansion of Rs 180 crore in FY07.

VALUATIONS

At the current price of Rs 640, the stock is trading at a P/E multiple of 12.5x its

FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7. On an EV/EBIDTA

basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings.

Given the companys dominant position in the crane-hiring market and the

capex boom in India, we believe that the stock is undervalued. We rate the

stock an OUTPERFORMER with a 12-month price target of Rs 837, at 14x FY08E

earnings, an upside potential of 31%.

Price

Rs 640

Target Price

Rs 837

Potential upside

31%

Time Frame

12 mths

Sanghvi Movers

OUTPERFORMER

Exhibit 1: Key Financials

Year to March 31 FY05 FY06 FY07E FY08E

Net Profit (Rs crore) 13.70 32.18 41.66 52.48

EPS (Rs) 18.77 44.10 50.95 59.79

% Growth 121.6% 134.9% 15.5% 17.3%

P/E (x) 34.09 14.51 12.56 10.70

Price/Book (x) 8.23 5.78 2.52 1.93

EV/EBIDTA (x) 12.35 7.06 6.35 5.46

NPM (%) 18.06 21.51 23.65 24.17

RoNW (%) 24.13 39.85 20.08 18.00

RoCE (%) 15.35 19.99 18.13 18.65

Source: ICICIdirect Research


2/10


Sanghvi Movers, flagship of the Sanghvi Group, is Indias largest crane operator and among

the top 5 largest crane hiring companies in Asia. It is ranked 15 th globally by Cranes International, a

UK based leading magazine tracking the global crane providers.

It has a fleet of around 250 medium to large-sized heavy duty hydraulic truck-mounted tele-

scopic and lattice boom cranes and crawler cranes, with lifting capacity ranging from 20 tonnes to

800 tonnes. Sanghvi provides these cranes for heavy lifting, plant erection and maintenance services

to various industries in infrastructure and core sector areas, which includes include power, refineries,

steel and cement. It undertakes implementation of turnkey projects, which includes providing of well-

maintained equipments, expert technical services and skilled manpower.

The company also has a fleet of 75 trailers, which it uses to transport cranes in parts to reduce

its dependence on outside transport service. Sanghvi has also set up 8 depots at various locationsacross the country to save on cost and time required for mobilisation of cranes.

The companys major clients include Suzlon Energy, Reliance Industries, Enercon, BHEL, Grasim,

Tata Steel, L&T (ECC group), etc. The company has diversified its business activities by venturing in

power generation. It has wind mills of 5.05 MW installed in Rajasthan and Karnataka.

COMPANY BACKGROUND

Exhibit 2:Sanghvi Movers cranes at work

Source: Company

A Liebherr LR 1400-2 crawler crane A Krupp GMT 350 hydraulic truck mounted crane


3/10


INVESTMENT RATIONALE

I) Thrust on infrastructure to spur demand for cranes

Sanghvis fortunes are directly related to industrial and infrastructure growth. The government has unveiledseveral initiatives to boost infrastructure and facilitate investment into the sector. Cranes are an essential

component for infrastructure building and with the massive investments lined up both by the government

and private sector we expect the company to benefit from increased demand. The company mainly pro-

vides services to core sectors like construction, power, refineries, steel and cement. These sectors are wit-

nessing phenomenal growth and have lined up huge capex.

Exhibit 3 :India Incs major capex projects

Source: CMIE, ICICIdirect Research

Sector Company Project Place Capex

(Rs crore)

Refineries Reliance Industries 29 million tonnes refinery, SEZ complex Jamnagar, Gujarat 27,000

Indian Oil Corporation 15 million tonnes refinery cum petrochemicals complex Paradip, Orissa. 25,000

Steel Posco Steel SEZ Orissa 52,000

Mittal Steel 12 million tonnes steel plant Jharkhand / Orissa 40,000

JSW Steel Jharkhand Steel Project Jharkhand 35,000

Tata Steel Dubri (Kalinganagar) Steel Project Orissa 15,000

Power NTPC Hydel Power Project Arunachal Pradesh 20,000

Reliance Energy 12,000 MW thermal power project Hirma, Orissa 60,000

Suzlon Energy Kachchha Wind Power Project Gujarat 2,200

Cement Grasim 3 projects Orissa 3,600

UltraTech Cement Expansion of units Gujarat, Andhra Pradesh 2,700

and Chhattisgarh

The investment in creating and upgrading infrastructure over FY07-12E has been estimated at a whopping Rs

1,400,000 crore. Sanghvi Movers, the largest crane operator in the country will be the biggest beneficiary.

Beneficiary of rising crude prices

Due to a sustained rise in crude prices over the last decade, investments in alternate technologies for energy like

windmills have grown multi-fold. In the 11th Five-Year plan (2007-12), the government has proposed an installed

capacity of 10,000 - 12,000 MW of renewable energy through wind power. The windmill segment currently ac-

counts for over 60% of Sanghvis revenues, with Suzlon being its largest customer. Suzlon, which is expanding

very rapidly, has entered into a long-term contract of 39 months with Sanghvi for supply of cranes.

Reliance Industries, another large customer, is also expanding capacity. Reliance Petroleum, its subsidiary, is

building a 29 million tonnes petroleum refinery-cum-SEZ complex in Jamnagar, Gujarat and has booked cranes

from Sanghvi.

The company also provides cranes for the annual maintenance shutdown of the plants, which are of short

duration.


4/10


II) Dominant position in the crane-hiring business in India

Sanghvi enjoys a leadership position in the domestic crane-hiring market with an almost 50% market share.

It has a fleet of 250 cranes, which include medium to large sized heavy duty hydraulic truck-mounted tele-

scopic and lattice boom cranes and crawler cranes, with lifting capacity ranging from 20 tons to 800 tons.

Currently, more than 87% of the total gross block includes cranes with a lifting capacity above 100 tonnes.The margins get better with higher tonnage. The companys strategy is to deploy most of its cranes for

medium to long-term basis, which provides stability to earnings, besides increasing utilisation rates. Sanghvi

boasts of a marquee clientele, which includes Suzlon Energy, Reliance Industries, Enercon, BHEL, Grasim,

Tata Steel, L&T, etc.

Exhibit 4 :Marquee clientele

Source: Company, ICICIdirect Research

Favourable global scenario

Due to the industrial slowdown, which started in the late 1990s, Sanghvis fortunes took a downturn and sales

plummeted from Rs 51.5 crore in FY99 to Rs 22.4 crore in FY02. Income as percentage of gross block, a key metric

in this business, dropped from 46% in FY99 to 20% in FY01 and hovered around those levels till FY03. However,

the revival in the Indian economy post 2003 saw a pick up in demand for cranes. At the same time, the rapid

industrialisation in China and the oil-fed boom in the Middle East over the last few years resulted in strong demand

for cranes from these regions. Consequently, crane manufacturers order books are now flooded and the lead-time

for new cranes has shot up to 18 months. The second-hand cranes market is also booming and prices have

increased to almost 80-85% of the prices of new cranes.

This shortage has resulted in crane hiring companies enjoying twin benefits of higher utilisation as well as billing

rates. Sanghvi has seen its sales and income/gross block surge to Rs 149.65 crore and 37% in FY06, which

highlights the change in fortunes.

Power Oil & Refineries Cement Metal Engineering Others

Suzlon Reliance Grasim Tata Steel L&T- ECC Tata Chemicals

Enercon ONGC Ultra Tech Vedanta Resources Bechtel Indogulf

Windia Power MRPL ACC Ispat Samsung Engineering

NTPC Indian Oil Gujarat Ambuja Indian Charge Chrome Hyundai

BHEL GAIL Rolls Royce

Exhibit 5:Sharp improvement in operations


46%

29%

20% 19%23%

30%32% 37%

0

20

40

60

80100

120

140

160

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06

Rs

Crore

0%

10%

20%

30%

40%

50%

Income Income/GB (RHS)


5/10


III) Aggressive ramp up in crane capacity

From 1999-2003, the companys gross block was stagnant reflecting the subdued economic scenario of the

time. However, it was quick to anticipate the increase in demand for cranes when the Indian economy started

reviving in 2003 and aggressively ramped up its capacity. Its gross block has since increased 3.5x from Rs

114.3 crore in FY03 to Rs 405.6 crore in FY06 with its fleet expanding to 200 cranes.

Furthermore, Sanghvi has lined up a capex of Rs 330 crore for FY07-08E to increase its crane capacity by

about 30%. It acquired 42 cranes in FY07 and will add another 18-22 cranes in FY08E.

Exhibit 6 :Capacity addition (number of cranes)


The company is financing this expansion by a mixture of debt and equity so as not to increase leverage signifi-

cantly. The promoters are contributing Rs 42 crore by subscribing to 600,000 convertible warrants at Rs 700 per

share, of which they paid Rs 6 crore in May 2006 and the balance Rs. 36 crore shall be brought in FY08 for further

capex. It further raised Rs 72.6 crore by issuing 880,000 equity shares to Goldpeak, a subsidiary of Aria Investment

Partners III, in January 2007 at Rs 825 per share.

Setting up of depots to save time & cost

Extensive amount of logistics services are required for mobilisation and demobilisation of its cranes. To save cost

and time, Sanghvi has set up eight depots at strategic locations across India, for parking and overhaul of the

cranes once they are demobilised. This helps in improving manoeuvrability and turnaround time for its fleet of

heavy-duty cranes. The depots are further supplemented with 75 trailers owned by Sanghvi, which enable the

transportation of cranes.

These depots are located at strategic locations across the country near industrial activity centres. It has depots at

Pune, Bharuch, Jamnagar (Gujarat), Chennai, Nagpur, Bangalore, Cuttack (Orissa) and Gaziabad (Delhi). We ex-

pect that this will help Sanghvi to increase the operational efficiency and effectively deploy the existing cranes,

thus increasing the average utilisation of assets.

Exhibit 7:Trend in gross block


Second-hand Brand new Total additions

FY07 28 14 42

FY08 08-10 10-12 18-22

112.4 120.7 117.8 115.4 114.3 155.7

236.6

405.6

586.6

737.6

50

150

250

350

450

550

650

750

850

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E FY08E

Rs

crore


6/10


KEY CONCERNS

Any delay in delivery of new cranes ordered, as well as non-availability of second hand cranes, will impact

the growth potential.

Being a capital-intensive industry, the company has funded a major part of its capex via the debt route and

a significant hike in interest rates would have an adverse impact on its profitability.

FINANCIALS

Exhibit 8 :Key Assumptions


Sales FY07E FY08E

Average Utilisation 83% 85%

Avg. Realisation per month

(% of gross block)

2nd Hand Cranes 3.25% 3.25%

New Cranes 2.25% 2.25%

Income from operations and net profit to surge

Efficient deployment, better price realization and shift towards higher tonnage cranes which have better margins

will drive revenue and earnings going forward. Income is expected to grow at a CAGR of 20.6% from Rs 149 crore

in FY06 to Rs 216.65 crore in FY08E. Net profit is expected to grow at a CAGR of 27.7% from Rs 32.18 crore in FY06

to Rs 52.48 crore in FY08E.

Exhibit 9:Projected revenues and net profit


0.00

50.00

100.00

150.00

200.00

250.00

FY04 FY05 FY06 FY07E FY08E

Rs

Crore

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Rs

Crore

Income Net Profit (RHS)


7/10


Robust operating margins

The huge capex lined-up by core sector industries coupled with the global shortage of cranes has helped Sanghvi

improve realization on its cranes. Other initiatives like setting up depots across the country, supplemented with a

set of 75 trailers have helped in reducing cost and improve margins. Operating profit margin, which was at 55%in

FY04, is likely to expand to 70.8% by FY08E.

Exhibit 10:Improving operating margins


VALUATIONS

Exhibit 11:P/E Band


The stock has been fluctuating in the P/E band of 14x 18x one-year forward earnings for the last year. At the

current price of Rs 640, the stock is trading at 12.5x its FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7.

On an EV/EBIDTA basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings. Considering

Sanghvis dominant position in the crane-hiring business, we believe that it is one of the best proxy plays on the

infrastructure boom. We rate the stock an OUTPERFORMER with a price target of Rs 837, at 15x FY08E earnings,

at the lower level of its historical trading band.

55.3%

60.4%

66.2%

69.5%70.8%

50%

55%

60%

65%

70%

75%

FY04 FY05 FY06 FY07E FY08E

0

200

400

600

800

1000

1200

01-Apr-05 01-Aug-05 01-Dec-05 01-Apr-06 01-Aug-06 01-Dec-06

Share

Pr

ice

(Rs

)

22x

18x

14x

10x


8/10


Net profit to grow at CAGR of

28% over FY06-FY08E

Aggressive ramp-up in crane

capacity

Capital infusion by promoters

and private placement

Income to grow at CAGR of 21% over FY06-FY08E

FINANCIAL SUMMARY

Profit and Loss Account

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Balance Sheet

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(Rs Crore)

Year to March 31 FY08E FY07E FY06 FY05

Income from Operations 216.65 175.01 149.05 75.38

% Growth 23.80% 17.40% 97.70% 64.70%

Total Expenditure 63.31 53.43 50.44 29.86

Operating Profit 153.34 121.58 98.61 45.53

% Growth 26.10% 23.30% 116.60% 79.90%

Other Income 0.43 1.14 0.6 0.49

EBIDTA 153.77 122.72 99.21 46.01

EBIDTA margin (%) 70.84% 69.67% 66.30% 60.65%

Depreciation 47.35 35.4 35.64 21.28

EBIT 106.42 87.32 63.57 24.73

% Growth 21.90% 37.40% 157.10% 112.80%Interest 29.32 25.48 13.72 4.67

PBT 77.1 61.84 49.85 20.06

% Growth 24.70% 24.00% 148.50% 108.10%

Taxation 24.63 20.18 17.67 6.36

PAT 52.48 41.66 32.18 13.7

% Change YoY 26.00% 29.50% 134.90% 121.60%

Extraordinary Items 0 17.12 0 0

Shares O/S (crore) 0.88 0.82 0.73 0.73

EPS (Rs) 59.79 50.95 44.1 18.77

(Rs Crore)


Sources of funds

Equity Share Capital 8.78 8.18 7.3 7.3

Share Warrants 0 6 0 0

Reserves & Surplus 282.7 199.27 73.46 49.46

Secured Loans 274.22 264.22 234.22 101.91

Unsecured Loans 5 4 3.08 2.45

Deferred Tax Liability 25.92 20.92 16.51 17.65

Current Liabilities & Provisions 52.09 42.43 28.39 9.5

Total Liability 648.7 545.01 362.96 188.27

Application of Funds

Net Block 560.84 457.19 285.77 152.34

Capital WIP 0 0 12.41 1.81

Investments 0 0 0 0.41

Cash 1.2 12.57 3.78 3.27

Trade Receivables 54.16 43.75 32.74 19.72

Loans & Advances 32.5 31.5 28.24 10.73

Miscellaneous Expenditure 0 0 0 0

Total Asset 648.7 545.01 362.96 188.27


9/10


Operating margins to improvesignificantly

Reduction in D/E ratio despiteof Rs 330 crore capex

Cash Flow Statement

Ratios

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(Rs Crore)


Opening Cash Balance 12.57 3.78 3.27 2.6

Profit after Tax 52.48 58.79 32.18 13.7

Misc Expenditure w/off 0 0 0 0.13

Dividend Paid -5.05 -4.7 -8.18 -4.09

Depreciation 47.35 35.4 35.64 21.28

Provision for deffered tax 5 4.41 -1.14 2.16

Cash Flow before WC Changes 99.78 93.89 58.5 33.18

Net Increase in Current Liabilities 9.66 14.04 18.89 2.52

Net Increase in Current Assets -11.4 -14.27 -30.54 -13.23

Cash Flow after WC Changes 98.03 93.67 46.85 22.47

Purchase of Fixed Assets -151 -194.4 -179.67 -84.5

(Increase) / Decrease in Investment 0 0 0.4 -0.39

Increase / (Decrease) in Loan Funds 11 30.92 132.94 63.08

Increase / (Decrease) in Equity Capital 30.6 78.6 0 0

Net Change in Cash -11.37 8.78 0.51 0.67

Closing Cash Balance 1.2 12.57 3.78 3.27


EPS (Rs.) 59.79 50.95 44.1 18.77

Book Value (Rs. Crore) 332.08 253.69 110.67 77.78

Enterprise Value (Rs. Crore) 839.75 778.99 700.53 568.11

EV/Sales (x) 3.88 4.45 4.7 7.54

EV/EBIDTA (x) 5.46 6.35 7.06 12.35

Market Cap to sales (x) 2.59 2.99 3.13 6.2

Price to Book Value (x) 1.93 2.52 5.78 8.23

Operating Margin (%) 70.78 69.47 66.16 60.39

Net Profit Margin (%) 24.17 23.65 21.51 18.06

RONW (%) 18 20.08 39.85 24.13

ROCE (%) 18.65 18.13 19.99 15.35

Debt/ Equity (x) 0.96 1.26 2.94 1.84

Current Ratio 1.69 2.07 2.28 3.55

Debtors Turnover Ratio 4 4 4.55 3.82

Fixed Assets Turnover Ratio 0.39 0.38 0.5 0.49


10/10

10

RATING RATIONALE

ICICIdirect endeavours to provide objective opinions and ecommendations. ICICIdirect assigns ratings to its stocks

according to their notional target price vs current market price and then categorises them as Outperformer,

Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target

price is defined as the analysts valuation for a stock.

Outperformer: 20% or more;

Performer: Between 10% and 20%;

Hold: +10% return;

Underperformer: -10% or more.

DisclaimerThe report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consentof ICICI Brokerage Services Limited (IBSL). The author of the report does not hold any investment in any of the companies mentioned in this report.IBSL may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is basedon information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracyor completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offerdocument or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutesinvestment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specificcircumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their owninvestment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This information may not betaken in substitution for the exercise of independent judgement by any recipient. The recipient should independently evaluate the investment risks.IBSL and affiliates will not accept any liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is notnecessarily a guide to future performance. Actual results may differ materially from those set forth in projections. IBSL may have issued otherreports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed orintended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction,

where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IBSL and its affiliates to anyregistration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictionsor to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe suchrestriction.

Harendra Kumar Head - Research [email protected]

ICICIdirect Research Desk

ICICI Brokerage Services Limited,

2nd Floor, Stanrose House,

Appasaheb Marathe Road,

Prabhadevi, Mumbai - 400 025

[email protected]

PH/28/07

Sanghvi Movers

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