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Sanghvi Movers: Feeling external pressures - Views on News from Equitymaster
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Sanghvi Movers: Feeling external pressures
Jul 29, 2009

Performance summary
  • Net sales increase by 5% YoY. Growth in revenue remains subdued on account of lower utilisation and reduction in rates.
  • Operating margins expand by 2.9% YoY. This is due to lower operating costs (as a percentage of sales).
  • Net profit grows by 2% YoY. Growth at the bottomline level is impacted on account of higher depreciation and interest charges.


Standalone financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Sales 776 816 5.1%
Expenditure 211 198 -6.1%
Operating profit (EBDITA) 566 618 9.3%
Operating profit margin (%) 72.9% 75.8%  
Other income 24 33 40.7%
Interest 101 123 21.1%
Depreciation 147 186 26.4%
Profit before tax 341 343 0.6%
Tax 114 112 -1.8%
Profit after tax/(loss) 227 231 1.9%
Net profit margin (%) 29.2% 28.3%  
No. of shares (m)   43.3  
Diluted earnings per share (Rs)*   24.8  
P/E ratio (x)*   6.5  
* On a trailing 12-month basis, adjusted for extraordinary items

What has driven performance in 1QFY10?
  • Sanghvi Movers (SML) reported a 5% YoY growth in revenues. During the quarter, the rate of utilisation of the cranes dropped considerably to about 75% (approximately 85% in 4QFY09). The company has attributed this to two factors - delay of certain projects (mostly power projects) and competition from Reliance (not as significant as the other reason). The companyís management indicated that the utilisation rate is likely to remain at similar levels in the next quarter. It may be noted that at the end of FY09, the companyís management expected the rate to fall to around 81% to 82% for the full year.

  • SML also witnessed a 5% to 10% reduction in rates. As per the companyís management, the rationale behind the same was to be more competitive in the market. It also added that SML faced a certain amount of pricing pressure from clients during the quarter.

  • The blended realisation per crane also dropped to a little less than 3% as compared to a yield of about 3.5% in FY09. The management expects this to sustain for the full year.

  • The operating margins expanded by 2.9% to 75.8% during the quarter. This was on account of lower operating expenses which decreased by 10% YoY in absolute terms and reduced to 16.2% of sales as compared to 19% in 1QFY09. The management expects operating margins to remain in the region of 73% to 75% during FY10.

  • SMLís receivable days went up from 111 days in FY09 to nearly 120 days in 1QFY10. The company has been witnessing pressure on this front over the past few years. During FY08, the companyís debtor days stood at about 93 days.

  • SMLís net profits grew by 2% YoY during the quarter. The growth in profits was lower that the 9% YoY growth in operating profits on account of higher depreciation and interest costs. While interest costs increased to 15% of sales (13.1% in 1QFY09), depreciation costs increased to 22.8% (18.9% in 1QFY09).

  • It may be noted that during the quarter, the company sold a crane and some construction equipment worth almost Rs 21 m (which is included in other income). On excluding the same, the companyís profits would have been lower on a year on year basis.

What to expect?
At the current price of Rs 161, the stock of SML is trading at a multiple of 5.4 times our estimated FY11 EPS. During the conference call, the companyís management mentioned that it will reduce its capex plans from Rs 1.3 bn to approximately Rs 600 m in FY10. The reason behind the same is a delay in receiving one 1,400 tonne crane, which costs around Rs 750 m. The management expects to receive the delivery for the same in the next fiscal.

A key excerpt of the conference call is that Reliance has indirectly entered this segment. It is believed that it had purchased nearly 150 cranes (varying from 80 tonnes to 1,200 tonnes) to construct its recently completed refinery. Although Reliance has only deployed a very marginal portion of its fleet into the market, this factor cannot be ruled out as a possible threat to SML in the long run. SMLís management believes that Reliance will not be a major threat to it. However, it would be able to take a better judgment on the same in the next 6 to 12 months.

While the company may see some impact on its utilisation rate and rental rates in the medium term, we believe that SMLís experience and nationwide spread makes it a very strong player. Also the fact that the crane rental is not Relianceís key business focus cannot be ignored.

Business wise, the management expects SMLís growth to come from the power, refineries, cement and metro industries going forward. As for its business from the wind power segment, the same has reduced to approximately 17% of sales as compared about 45% last year. Other segments that were key contributors during the quarter were the hydrocarbon and cement sectors.

Looking at the long term prospects of the company, we maintain our positive view on the stock.

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