Sanghvi Movers


(CommonStocks) #41

Hi Ashish,

Market pays for visibility and predictability of earnings and both are not good in businesses like Sanghvi. For all you know this might turnaround do well in the market going on from here, but you are taking too much risk betting on it. Also do not look at it from your purchase price point of view, what matters today is the current price and whether it is a good buy today with respect to the other stocks that are in your scanner.


(Ashish Pandey) #42

Hi CommonStocks,

U r correct. Actually i wanted to assess the negatives, the probability and the magnitude of their impacts. Suzlon write off has come up so we were sharing thoughts.


(Varadharajan Ragunathan) #43

Ashish

I am also tempted on the stock and that’s why I did the scuttle butt. If my research had shown that contracts were being awarded and sanghvi was winning orders, I would have initiated a position.

If one is sure that nothing great is going to happen in the next 6-12 months and there is a downside risk, why not wait.

I am reasonably sure that before Q4, you are unlikely to see any blockbuster numbers on topline growth.

Hence, my call.

Hi Ashish,

Market pays for visibility and predictability of earnings and both are not good in businesses like Sanghvi. For all you know this might turnaround do well in the market going on from here, but you are taking too much risk betting on it. Also do not look at it from your purchase price point of view, what matters today is the current price and whether it is a good buy today with respect to the other stocks that are in your scanner.


(Arun Kumar) #44

Iheard the Management at the AGM. The business is improving with minor improvement in the utilisation. Major uptick in financial performance will be seen in FY16 driven by a) higher revenues with both utilisation and yields going up b) operating leverage…more or less a fixed cost business c) reduced debt as the Company is paying close to 45-50 Crs every 6 mths. Their debt will be reduced to 325 Crs by end of FY15. COMPETITIVE ADVANTAGE: a)The quality of assets/ cranes is great as they have premium quality cranes leading to better on ground performance b) The cost of their existing cranes is much lower than the current cost at usd 60, providing them the flexibility to earn a higher yield. c) historical relationships as well as loyal employees.

BS is improving with Suzlon receivables now only around 35 Crs outstanding which is expected to be recovered.Repayment ofdebt will reduce debt/equity to 0.5. Recoveries expected from bad debts.

High corporate governance with very down to earth people. Very focussed on profitability and reducing the leverage from the system. No promoter pledge.

I see multiple levers ahead- improving demand scenario, operating levergae leading to higher EBITDA/ profitability and reducing debt and interest cost. Crane is a late cycle play since cranes are ordered once all the materials for a plant are available and ready to instal- so recovery may be in 1QFY16. When will the market’s discount is anybody’s guess??


(Ashish Pandey) #45

Hi Arun,

Many many thanks for the updates. So receivables from Suzlon are not as high as some of us were fearing and that too is recoverable, at least from Sanghvi’s point of view. Also, real recovery is still some time away, that part is a bit negative but at least management stated that honestly i guess.

I had a talk with someone who had talked with Crane rental companies. As per info collected by him, yes Sanghvi is the biggest player but can see limited competition as in NCR itself there are 5-6 players having 500-600MT cranes, that range of cranes are not exclusive to Sanghvi anymore, many more people have it, right now 1000MT crane is THE thing. Also, as per one source Sanghvi was blacklisted by Reliance because of some service issues but from another source it was Sanghvi who kind of blacklisted Reliance as Reliance wanted cranes on dirt cheap rates, much cheaper than what Sanghvi was quoting. So reliance is and wont be client.

Thanks


(Arun Kumar) #46

Hi Ashish,

There is competition that has cropped up but is no where near the quality of Cranes which Sanghvi has.Moreover, Sanghvi’s cost of acquisition is much lower (at usd 45) in relative to its competition and quality is much better…leading to higher yields. Regarding Reliance as customer, I donot see that as an issue. The Management doesn’t seem to be the one to do anything that it will get black listed…high quality clean Management.Only thing is it is little conservative and too focussed on the return of the business with higher yields. So will let go some of the business that comes at lower yields…

Hope it helps…


(Ashish Pandey) #47

Hey Arun,

Regarding competition i too am not worried much, i was just sharing info. I did not know that cost of cranes has increased because of exchange rate so its good for us:)

Also, i too agree that if somebody, even Reliance, wants cranes at cheaper rate than markets, Sanghvi or anybody else have every right to refuse, its good that management decided not to supply cranes to Reliance.

_Only thing is it is little conservative and too focussed on the return of the business with higher yields. So will let go some of the business that comes at lower yields…–> _Warren Buffett advises its insurance subsidiaries to do the same:)


(Ashish Pandey) #48

Receivables further down to 98 crores from 148 crores in March


(Varadharajan Ragunathan) #49

Ashish

I met someone from the industry who said all cargo’s cranes are better and more relevant than ?Sanghvi’s.

His view is also that all cargo is doing well - could you please talk to your contact and confirm ?


(Ashish Pandey) #50

Ragunathan,

I checked, no one has any idea about it and they were flummoxed as well on how cargo cranes can compete with those of Sanghvi. Overall feedback is got is things are changing on ground and it should do much better in starting FY16, it should shoot after 6 months


(Ashish Pandey) #51

Results from the last 3 qtrs show improvement. Here are my notes from the latest concall:

capex done for 100 cr q1, q2 q3 for Already contracted for 200 crore of capex. Margins gonna go up. Economy’s best yet to come in 6 months. 131 crores of loans repaid in fy15Avg capacity utilisation =66% yield = 2.4%/months. Avg debtor days were 127 days vis a vis 195 days in fy 14. 2.8%, capacity utilisation for q4 2015 was 79% and yield was 2.8%.

Debtors are further down and very very bullish tone, 62% of utlilised capacity is involved in wind sector, but in the next six months they expect power sector to come up, inquiries have already started.

Some cranes tied up in reliance refinery. I think it will be interesting to watch how sanghvi does given Shanghvi has invested in Suzlon, govt is giving so many incentives for clean power and suzlon would need cranes for development.


(Hemant V Bhatia) #52

Co.was repr by C.P. Sanghvi, CM & MD and Sham Kajale, ED & CFO.Key takeaways of the call by Capital Mkt
Company’s fleet stands at 396 cranes as end of June 2015 and of which share of new cranes was about 62%. Capacity utilization in Q1FY16 was about 77% with blended yield at 2.86% per month. The capacity utilization of 600 MT cranes was about 100%.Revenue mix for Q1FY16 - Wind 59%; power 9%; refinery 16%; metal 4%; cement 8%; others 4%.
The company incurred a capex of Rs 107 crore in Q1FY16 with which it added 13 nos of cranes. Planned Capex was Rs 380 crore with which the company to buy 25 cranes both new and used in 80-800 MT capacity. The company will do only focus purchases/capex. The company under this capex programme will buy about 15 nos of cranes in 650-750-800 MT capacity. Of these 15 about 7 the company has already been bought and balance are in the process of purchase.The capex might go up to Rs 425 crore depending on finding job for the cranes and yield.While strong demand of wind sector continues, the refinery is to be stable. The company sees demand pickup in power with some private players such as Lanco proceeding with project execution apart from BHEL.
The company has a firm order book of over Rs 230 crore as on July 1, 2015. Hope to do well in current and next fiscal given the feeling from wind sector and revival in power sector. Atleast for 1-1.5 year the company has visibility for capacity utilization and yield. The company is hopeful to attain a capacity utilization of 80% for next 6 quarters.The company has followed no pay no work and that has worked. Debtors out-standing for more than 6 months and even more than 1 year have got collected.
Total Loans is Rs 391 .44 crore. Debt payment due for FY16 is Rs 72 crore and of which the company already made payment of Rs 44.44 crore in Q1FY16 and balance RS 27.78 crore will be paid within balance period of current fiscal.The reliance project will go on till mid 2016 and early 2017 so the cranes employed in this project will get released by that time only. And moreover these cranes are small in size and not in the high capacity range. By that time the other player get in the company would have captured the market share.
The capacity utilization in quarter ended March 2015 was 79% and blended yield is 2.7%. Typically first quarter of any fiscal is a weak one so the utilization and yield should not comparable with sequential previous quarter of March 2015.
About 6.12% of the revenue came from overtime.Contribution from top 5 clients is about 52-53%.The yield is now expected to get stabilize around 3%.The wind tower height has increased from 80 mtrs to 120 mtrs. This requires cranes with higher capacity and higher boom length.Jun 2015 employee rate will be indicative for rest of the period. The March 2015 quarter employee cost includes some prior period items.


(Chintan) #53

can anyone explain me how yield of 2.8% is being arrived and how to look at it…


(Mukesh) #54

(Rental Income/Fixed assets)/12


(kanvgarg123) #55

Well surprising that people have stopped tracking this. Would love to start discussion if somebody writes back. This has become a blind buy after this latest FY. After the end of FY16 they will be having a Gross Block close to 2050 Cr and if they can get the monthly yield of 3%(present rates) their revenues can be around 740 cr and after doing all the calculations their FCF after tax would come around 450cr. If we take the debt and market cap into account (1167+ 600cr + 100cr) we are getting this company as 4FCF and in worst case of 2% yield we will get FCF of around 250cr so still we will be getting this company at around 9FCF. With sectoral tailwinds (Wind Sector) in place I think this becomes a big buy for next 3-5 years. Views Invited


(Prash) #56

I was holding this stock from last 2 years and sold around 330. One of the things I am finding tough to get hold is on the future order book. The company has run off of capacity and with existing capacity, it cannot grow further. So naturally, the company is going on a next cycle of Capex, which will definitely increase its fixed costs. If a future order book doesn’t materialize, than the company can definitely go under loss quickly similar to what happened in 2013~14. Thats the risk I am thinking and want to gather more data on future order book. If anyone has ideas where the orders are going to come from (wind energy is certainly one of them, power yet to materialize) and how much certain they are, it will be useful.


(rajesh) #57

pros

  • Receivable days have come down
  • suzlon - not a big issue now
  • High visibility of growth for fy16/fy17
  • Wind sector tailwinds for couple of years
  • Experienced Management

cons

  • Cyclical company
  • Major contribution from single sector wind
  • Yield and Utilization have topped out now. No further improvement expected even in Fy17 or fy18.
  • Top line Growth is mainly funded by incremental Capex and improvement in gross block. Biggest risk.
  • Growth is a concern from Fy19 as no further capex is possible in fy18 and Utilization of existing bloated capacity will be a concern ( Capex was increased heavily in Fy16 and possibly in fy17)

My calculations for fy17

  • Gross block = 2100
  • Avg Gross block = 2000
  • Utilization = 82%
  • gross block utilization = 1640
  • Monthly Yield = 3.1%
  • Yearly yield = 37.2%
  • Revenue = 610 crores
  • ebitda margin = 67%
  • ebitda = 409
  • depreciation = 150 ( 7% gross block)
  • interest = 72
  • tax rate = 35%
  • pat = 123
  • eps = 28
    Disclosure invested

(kanvgarg123) #58

So I will talk about my understanding.

  1. I calculated yield directly from Gross block not from Gross Block Utilization. I would have to check whether they were telling numbers with Gross Block utilization or total Gross Block.
  2. I did not take interest as 72 instead I assumed it to be 60 crores as in the concall they said that they won’t be undergoing any capex for the first half of FY17 so something will be repaid.
  3. I took tax rate as 33% not 35% taken directly from the FY12 and can you please make me understand about what tax rate Arun jaitley was talking about when he said that they will reduce corporate tax to 25%?
  4. Major contribution sector changes with the industry which is growing. Earlier they had major inclination towards Power sector not including wind. I think with India growing (refinaries, wind sector, Power sector ) this can be a good bet given that management looks smart. They completely stopped Capex when the saw India slowing down.
  5. Management has said that they can increase the yield to max 87-88% and 6% above 82% will make a lot of difference. (only if they can do it)
  6. This looks to be the only cyclical company managing its growth with FCF generation.

Views Invited
Disc - Invested at 330 levels and planning to add more as soon as my salary comes :stuck_out_tongue:


(sagararya) #59

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/C09FCD10_91F5_4DED_92DC_200435D41F2E_143558.pdf


(Arun Kumar) #60

Any idea why the stock is so cheap? With descent Management and the stock at less than 10 P/E and with more than 200 Crs of cash generation (mkt cap 1100 Crs). The Management in the last quarter indicated venture into newer areas for ex: tunnelling to utilise the cash. Would love to hear more views.