Sanghvi Movers


(hemtan100) #61

Did some sensitivity analysis around the two main levers - yield and utilization.
500 cr of cash generation in next 2 years. PAT is meaningless in the face of heavy depreciation when the useful life of assets extend way beyond the depreciated life.

FY17 should see a decent uptick in topline and if some amount of ocf is used to retire debt, that should result in additional savings.


(hemtan100) #62

BSE Announcements:
Sanghvi Movers Ltd has informed BSE that ICRA Limited have reaffirmed credit rating of the Company for long term loans to [ICRA]A+ (pronounced as ICRA A plus) and has upgraded the rating for short term loans to [ICRA]A1+ (pronounced ICRA A one plus). The outlook on the long term rating is Stable.

My take:
Short term borrowings are negligible. Hence the short term rating upgrade does not move the needle by much.
Hoping to see significant LT debt reduction in fy17.


(amit anam) #63

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/1B30D9B7_F4AE_4A89_B001_BA85E9F31695_144637.pdf

June quarter result.

Disc : Took exposure today at 273 (5% of my PF)


(Arun Kumar) #64

descent results…more details in the concall…


(Manoj Agarwal) #65

Please see June 15 results over March 15 and the compare June 16 with March 16. Looks like some slow down.


(hemtan100) #66

would have expected the June qtr results to be the best of the lot. doesn’t seem like good tidings for the company.


(hazariwalapu) #67

it is delivering excellent results. Though there EBITDA has reduced from 66% to 63.5% still not bad as valuations are not demanding. One thing i am not understanding is why markets are not considering this kind of growth as valuations are just at 5 times of cash flow from operations and it is a leader in its segment. do i am missing something on valuations front or from market perspective ?

Thanks

Prashant

Disc: Invested


(Yogansh) #68

Hi @manojag & @hemtan100,

Co. claims that their Q1 is usually weak as compared to other Qtrs, and this is visible from their past records. Second half of the year is where they see strong numbers.
Also, if we compare Jun 2016 Qtr with corresponding Jun 2015 Qtr, then in that case company has posted good set of numbers. (Refer the results link below).
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/1B30D9B7_F4AE_4A89_B001_BA85E9F31695_144637.pdf

I attended the investor Conference Call today and took down some quick notes.
Sharing the same with the group. (PFA)
Sanghvi Movers Q1FY17 Con call.docx (18.2 KB)

Regards,
Yogansh Jeswani

Disclosure: Invested


(hemtan100) #69

thank you for your concall notes. this is really useful

Again, the moot point is this - without any incremental capex over Q4fy16 and utilization at 80% (which is sub-q4 levels) and yield at 2.83% (which is way below 3.1% levels seen in q4), where is fy17 growth going to come from?

Obviously some amount of debt will be repaid and that should aid the bottomline. But in terms of cash flow generation, fy17 should be flat at best or even lower than fy16. This is a market on growth steroids!


(rajesh) #70

Fy17 growth will not be more than 10% as per mgmt. ( Q2 will be bad as per mgmt). Wind sector itself is in turmoil looking at the receivables situation and accelerated depreciation advantage being removed form April 2017. Thinking of selling my stake here even though promoters seem to be gud and cash flow is excellent…


(Prash) #71

I used to hold this company from the lows of 80 and sold at ~300. The current market is focused on stocks which can show growth in the upward of 20%.

Sanghvi Movers with current capacity utilization of 80% and less control of pricing, will have modest growth.
The stock is a defensive play now. If it falls below 225, that it is a value play.


(Arun Kumar) #72

The company will generate ~ 200 Crs of cash…close to 20% cash flow yield. Very cheap. Can’t understand why it should not be bought at current levels. Never seen companies with such high earnings and cash flow yield.


#73

Why are return parameters so depressed.


(Jehan Bhadha) #74

It is because 60% of their sales come from wind energy sector which is not growing as fast as it used to in earlier years.
Management has guided for topline growth of just 10%.


(Raj) #75

As per recent breakdown it might be quoting at your price in near future.


(Prem Sagar) #76

Hi everyone,
This is my first post here though I have used Valuepickr extensively in the past for my own research. First, my sincere thanks to all you guys! Please excuse me if something in my reply is against the forum guidelines.

I run a small rental company in another industry and hence, am interested in Sanghvi more out of curiosity. My opinion is from the perspective of a business owner. Please let me know where you think I could be wrong.

What I have come to believe is this - Sanghvi is a good business with a large market share, one that is useful to the society, has solid assets that have a long life… BUT… doesn’t earn good return on capital in the long run. Even if you buy it at a 50% discount to intrinsic value, in the long run, you are not going to earn great returns. When I say that, I mean returns are going to be under 12% or so in the long run. My justification below.

In any equipment rental business, these things matter:

  1. life of asset
  2. payback period (without considering opex)
  3. annual maintenance cost
  4. resale / residual value
  5. return on invested capital

Also, depreciation becomes a tricky thing. Few assets depreciate fast (electronic rentals), few slow (furniture, cars) and few actually appreciate in value. Going by the comments of management and few industry experts, I think cranes do appreciate in value to some extent (let us keep Chinese cranes out of equation for now, they dont have a track record vis-a-vis German cranes for example).

What that means to me - few of you are going to disagree with me - I am going to ignore depreciation.

That also means, I will use gross block instead of net block for asset value.

Sanghvi had a gross block of 2040cr as per last concall. In this business, more than 95% of the asset is the rental equipment and hence, let us simply consider the entire gross block as “productive asset”.

Suppose if I have to compete with Sanghvi, I have to put in atleast that much to buy new cranes to build similar capacity, or actually, much more because new cranes cost more. Now, does it make sense for me to do so?

In their last FY, they had 82% utilisation and 3.03% yield which I think is a decent figure and probably slightly above average for the industry. I think the upper end is established at something like 85% utilisation or yield of 3.3% (I think yield was ~4% for crane rental industry before 2008?). That means, you need to put in more than Rs 3 to earn Rs 1 - that gives an idea of how intensive capital requirements are.

On a gross block of 2200 cr, they had a revenue of 531cr and PAT of ~117cr. I am going to add the depreciation of 126cr to that as my asset is not actually depreciating. That is 243cr earned with 2200cr of invested capital - or roughly 12%.

I will repeat that - 12%.

That is a pretty modest return. And this is in what appears like pretty decent year - there have been worse periods for the company. (Honestly, the golden days of 4%+ yields are gone). I don’t think the company is going to earn much more than 10-12% in long run over invested capital.

Now, that brings us to the question of improving returns on shareholder capital (not entire capital). One way is to take loans and increase leverage. However, the interest rate on loans appear higher than 10% - which is what the business is earning. That is not going to bring any economic benefit in the long run as both cost of capital and earnings are roughly same.

Also, any profits from sale of cranes at higher price than value on books is not going to be materially impactful I think.

The other thing is blended yield. Since gross block carries a lot of cranes at lower cost, yield will appear inflated a bit (depends on what % of cranes are older). The newer cranes are actually getting yields of 1.5-1.8 I think. After operating expense and taxes, that will work out to less than 10% returns. That means return on incremental capex is going to be lower.

Which brings me to the opinion that Sanghvi is a good business (crane rental business is not going to go away anytime soon) with a solid market share that it is probably going to retain for a long time (as long as it keeps assets in good condition and invests steadily) - but shareholder returns in the long run are going to be unimpressive.

We can buy it at a good discount to intrinsic value and benefit one time, but that intrinsic value itself is growing at a very average pace.

Agree? If not, do let me know why.

Cheers,
Prem
Disclosure: Small investment to simply track rental companies


(Arun Kumar) #77

ROCE is 20% and ROE is 16%…the stock is traded at a cash flow yield of 18%. The EV is close to 1500 Crs with a annualised cash flow of 220 cars atlas. Where can you get this kind of valuation? Only issue is the muted growth but certain of 12-15% and problem to use the cash.


(Prem Sagar) #78

Arun,
Can you explain how you got the ROCE / ROE you mentioned?

I would be skeptical of regular calculations in this case. I would simply take asset base as north of 2000cr and calculate my returns. Even if you take a 500cr loan for it to bump up ROE, over time, the difference between what that loan costs you and what you earn is not much and that will show up in the long run.

Consider a new crane. Yield on those are more like 1.5-1.8% (the 3% yield you see for Sanghvi is because many cranes before 2010 were bought at much lower OEC). You end up making 20 in revenue for every Rs 100 invested - even if you have a OPM of 70%, post-tax yield on it drops below 10%.

Yes, EV is ~1500 cr and doesn’t look expensive when replacement value of cranes itself is north of 2000cr. It is cheap, but it is not exactly what you’d like to own for 10 years. The returns on incremental capex is hardly exciting - which is what will drive further value.


(Arun Kumar) #79

I would still use the traditional way of calculating the ROE and the ROCE (ebit/CE). The ROCE is 18.5% on FY16 numbers and will inch up higher for FY17. The business throws up + 200 Crs of cash with clear visibility of next 2-3 years. Have not come across any other company with such cash flow and low valuation.


(hazariwalapu) #80

Dear Prem,

Agree with your calculations but on the other side they have done capex of more than Rs.500 crs just last yr and that capex was not fully deployed last year so we will see some more fruits in coming yrs. so yours fig.s of RoCE and RoE differs from Mr. Arun. Now if you consider they are not doing any major capex for next 3-4 yrs and just a maintenance capex around 20 crs a yr they can generate lots of cash to retire entire debt. currently capex situation on the ground is not too good as their major revenue coming from wind mill, now it India’s focus on infrastructure materialize it will create demand for more cement plants + govt. focus on reducing crude import from currently 75% to 65% of total demand would create more demand for refineries and Sanghvi already mentioned this in concall. so even on muted demand from capex on ground they can create yield of 3%, their yield can inched up more and on other side if they retire debt they can save on interest cost too. so at this EV it is not a bad stock too.

Prashant