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Sanghvi Movers: Taking cautious steps
Feb 9, 2009

Performance summary
  • Topline grows by 39% YoY and 46% YoY during 3QFY09 and 9mFY09 respectively on the back of acquisition of new cranes and deployment of the same. Lowers capex targets for the next two fiscals.
  • EBIDTA margins improve during the quarter and remain stable in 9mFY09 over the corresponding periods of FY08 due to lower freight and fuel costs.
  • Net profit margins improve by nearly 1.7% in 9mFY09 over 9mFY09 due to lower interest costs.


(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 635 884 39.2% 1,725 2,509 45.5%
Expenditure 175 215 23.1% 443 646 46.2%
Operating profit (EBDITA) 460 669 45.3% 1282 1862 45.2%
EBDITA margin (%) 72.5% 75.6% 74.3% 74.2%
Other income 9 25 163.9% 34 60 78.1%
Interest 75 146 94.8% 224 285 27.3%
Depreciation 116 179 53.7% 341 491 43.8%
Profit before tax 278 367 32.3% 751 1,146 52.6%
Tax 100 128 27.9% 260 392 50.3%
Profit after tax/(loss) 178 239 34.8% 490 754 53.9%
Net profit margin (%) 28.0% 27.1% 28.4% 30.1%
No. of shares (m) 42.4 43.6
Diluted earnings per share (Rs)* 21.8
Price to earnings ratio (x) 3.3
(*On a trailing 12-month basis)

What has driven performance in 3QFY09?
  • Despite the broader slowdown in infrastructure investments, Sanghvi Movers (SML) continued to capitalise on the growth opportunities in the renewable energy, oil and gas and power sectors. Until the end of 9 months of this fiscal, the company completed a total capex of Rs 2,260 m and purchased 47 cranes. It had earlier projected total capex of Rs 2.5 bn for this fiscal but will be rounding off the year with additional capex of Rs 120 m in 4QFY09 to buy two second hand cranes. Thus it would fall short of its capex plans for the fiscal by Rs 120 m. We had estimated total 329 cranes for FY09 while SML will be having a total of 319 cranes (3% lower than our estimates).

    Further, the rate of utilization of the cranes has come down from 88% in 1HFY09 to 85% at the end of 9mFY09 and the company believes that this may go down further by 1% to 2% in the next one or two fiscals. Having said that, the blended realisation per crane of 3.3% is higher than our estimate due to the larger proportion of high capacity cranes. The company envisages EBIDTA margins to remain at 73% levels for FY09, which is higher than our estimate of 71.6%.

    Particulars of cranes
    9mFY09 % of total
    Total number of cranes 317
    Cranes above 100 Tonnes 181 57.1%
    Cranes below 100 Tonnes 136 42.9%
    Brand new cranes 52 16.4%
    Old cranes 265 83.6%

  • In 9mFY09, 34% of SMLís revenue came from the power sector and this is expected to go up to 60% in the next 2 -3 years. With the planned capacity addition of about 70,000 MW in the power sector during the Eleventh Five Year Plan, the company sees several large projects coming its way.

  • The top 47 clients of the company for the six months period 9mFY09, constituted 94% of its total revenue. The receivable days have gone up from 90 days last year to 110 days in 9mFY09.

  • SML will practice caution in its capex plans for FY10 and its capex may come down to 1 bn in that fiscal from the earlier planned Rs 1.9 bn. The remaining capex may get deferred to FY11.

  • The company had outstanding debt to the tune of Rs 5.2 bn and a debt to equity ratio of 1.5:1. This is higher than our estimates although we see the same coming down to 1 time by FY11. The companyís borrowing cost has come down from 12.5% in FY08 to 11.5% per annum in 9mFY09.

    In the result conference call, the management mentioned that its main target now is to bring the company to near to zero debt level. Also, if it does not undertake any capex over the next two and half years and instead concentrates of increasing the utilization levels, it can achieve this target. However, the same may not align with its topline growth targets.

What to expect?
At the current price of Rs 71, the stock is trading at a multiple of 2.5 times our estimated FY11 earnings. While the potential for revenue growth for the company continues to remain very lucrative, the same may have to be revised in the event of any major change in the companyís capex plans. Further, although we have estimated lower operating margins after factoring in lower capacity utilisation, the same is expected to remain in the range of 70% to 73% over the next three years. The companyís purchase of technologically superior high-tonnage cranes and trailers and a wider presence offering proximity to large project sites are expected to strengthen its standing in the domestic market. We retain our positive view on the stock.

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