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Sanghvi Movers: Firmly on track - Views on News from Equitymaster
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Sanghvi Movers: Firmly on track
Oct 21, 2008

Performance summary
  • Topline grows by 59% YoY in 1HFY09 on the back of acquisition of new cranes and deployment of the same.

  • EBIDTA margins remain stable in 1HFY09 despite higher freight and fuel costs.

  • Net profit margins improve by nearly 1.5% in 2QFY09 as well as 1HFY09. Lower other income shielded by operating leverage.



(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 563 947 68.1% 1,084 1,723 59.0%
Expenditure 144 221 53.7% 268 432 61.3%
Operating profit (EBDITA) 420 726 73.0% 816 1,291 58.3%
EBDITA margin (%) 74.5% 76.7% 75.3% 75.0%
Other income 11 4 -65.7% 12 17 45.1%
Interest 75 137 82.6% 148 238 60.2%
Depreciation 114 165 44.9% 225 312 38.7%
Profit before tax 242 428 76.9% 454 759 67.0%
Tax 74 140 89.2% 142 244 71.2%
Profit after tax/(loss) 168 288 71.5% 312 515 65.1%
Net profit margin (%) 29.8% 30.5% 28.8% 29.9%
No. of shares (m) 805.7 865.7
Diluted earnings per share (Rs)* 21.8
Price to earnings ratio (x) 6.6
(*On a trailing 12-month basis)

What has driven performance in 2QFY09?
  • Being the largest crane hiring company in the country, Sanghvi Movers (SML) continued to capitalise on the growth opportunities in the renewable energy, oil and gas and power sectors, despite the broader slowdown in infrastructure investments. During 2QFY09, the company purchased 22 cranes (of which 12 were used ones) at a cost of Rs 1,710 m. The average cost per new crane in SMLís books was approximately Rs 78 m and that of used crane was Rs 21 m at the end of 1HFY09.

  • The company will be adding 50 more cranes in the current fiscal and would invest close to Rs 850 m in the expansion plan. This will bring the total number of cranes to 367 at the end of FY09, which is 11% higher than our full year estimates. Further, SML would now be getting into the higher range of 1,350 tonne capacity cranes that would be useful for nuclear power and refinery projects.

    Particulars of cranes

    1HFY09 % 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 1HFY09, 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 1HFY09, constituted 94% of its total revenue. The receivable days have gone up from 90 days last year to above 100 days in 1HFY09. At the end of the half year period, the company had receivables of Rs 950 m.

  • 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 is 12% to 12.5% per annum.

What to expect?
At the current price of Rs 145, the stock is trading at a multiple of 4.9 times our estimated FY11 earnings. The potential for revenue growth for the company continues to remain very lucrative. 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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