I recently analyzed Sanghvi Movers at my Blog : http://thriftyinvestor.blogspot.com/2010/12/sanghvi-movers.html .
It appears to me to be Reasonably priced with good growth prospects. I invite views .
Sanghvi Movers Ltd. (SML), a flagship company of the Sanghvi Group,operating since 1989, is the largest crane hiring company in India, 3rd largest in Asia and 9th largest in the world . It has a fleet of 370 medium to large sized heavy duty hydraulic and crawler cranes with capacity ranging from 20 tons to 800 tons. The crane hiring business is the main business line for the company contributing around 99% of the turnover . The company also provides basic engineering and lift planning services along, as it helps in determining the time, labor, type of equipment required and flow of work.These cranes are used in the power, refineries, steel, cement and construction sectors, for purposes such as plant erection, heavy lifting and maintenance services.Lets take a closer look at the company to determine whether its worthy of an investment.
Some of the Positives of Sanghvi Movers that come to my mind are :
- _Near monopoly in higher capacity cranes
___: SML focuses on the higher capacity cranes market, since the below 100 MT capacity segment has many players operating in it. SML has approximately 65% market share in the above 100-150 MT crane segment and approximately 80% market share in the above 250 MT crane segment.The margins get better with higher tonnage. The companyâs strategy is to deploy a majority of its cranes on a medium to long-term basis. This provides stability to earnings besides increasing utilization rates.
2. Pan India Presence : SML has a network of 10 depots, which are strategically located to enable it to have a pan India presence. These depots not only reduce costs but also save time spent in transporting cranes from the depot to the site. For transporting Cranes, the company has a fleet of in-house trailers constituting 45 Volvos (100MT) and 35 trailers of 25 MT- 35 MT to reduce dependence on outside transport services. This has enabled the company to reduce costs and save time involved in moving cranes from one location to another.
3. _Thrust on infrastructure to spur demand for cranes _: Cranes are an essential component for infrastructure building. With massive investments lined up both by the government and the private sector we can expect the company to benefit from the increased demand. Around 0.5-0.7% of infrastructure spending translates to crane hiring charges.Power, Refineries, Steel, cement and construction sectors are witnessing good growth and have lined up huge capex. This augurs well for the company.
4. Strong Client base & Sourcing : SMLâs clients are major players in their respective industries. Major clientele of the company under various industry segments include Suzlon,BHEL,Enercon,Reliance etc. SML sources cranes from major international players like Liebherr (Germany), Terex Demag (Germany), Manitowoc (USA), American crane & Hoist (USA), Kobelco (Japan), and Kato (Japan). The company has established relations with crane vendors around the world.
5. Aggressive ramp up in crane capacity : After having aggressively added to its capacity over the last couple of years (total capex of Rs. 896 cr over the last 5 years), SML had, in keeping with the slowing economy, cut down on its capex plans.However, with an improvement in the market, the company is expected to resume its aggressive Capex plans.** **
The Main Risks that Sanghvi Movers faces can be summarized as below:
- Customer Concentration : About 40% of the company’s revenue comes from the Power Sector & the top 5 clients account for a major chunk of the revenue. Although SML has been able to reduce this dependence by diversifying into Refineries, Cement & Construction, a loss of few main customers can hurt it.
- Debt & interest Rates : 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. Increase in interest rates could impact the net profit margins of SML. The company has done well to bring down the D/E from 2.9 in 2006 to about 1 in 2010.
- Slowdown in economy : If the economy slows down , it may lead to curtailment in the capex plans of client companies or in execution which may may lead to a reduction in the utilization rate.In such a situation,one can expect Sanghvi Movers to take a considerable hit on its topline and bottomline. However the company does have some insularity to this due to its major customers being in the power sector as we saw in 2009.
- _Competition & Manpower _: Crane renting industry is an unorganized industry with a large number of players. The less than 100 MT capacity segment is highly competitive and there are large number of players. However, in the above 100 MT capacity segment, there are very few players. This is because cranes in this segment are expensive and need highly skilled manpower to operate and maintain.The company’s operations may get affected on account of increase in competition in Crane Hiring Business, shortage of trained operators, mechanics and engineers.
- FII Shareholding : SML has foreign shareholding of about 34%, which comprises of different institutional investors. These shareholders have been invested in the company for a considerable length of time, which reflects their confidence in SMLâs business. However, on the downside, there could be selling pressure when there is a sustained rise in price increasing the stockâs volatility.
Sanghvi Movers in my view is a proxy for the Infrastructure story that is to play out in our country.In the preceding boom in Infrastructure between 2003-2009 ,SML did well to grow its Topline ,Bottomline & improve margins. It would need to repeat that in the coming years while making sure it doesn’t take on too much Debt. With history on its side and a reasonable Valuation i believe Sanghvi Movers makes a good long term bet.
More Detailed Analysis at http://thriftyinvestor.blogspot.com/2010/12/sanghvi-movers.html