Yes, the issue with the company is, it is highly depended now on wind energy. Earlier they had good business from reliance but now majorly depended on the wind. The turn around of wind energy business is difficult to predict. But till then due to high fixed cost, the company will continue to post weak results.
There are some updates in case of sanghvi movers. The stock now looks very interesting from valuation point of view. My views are as follows .
- The company is very much dependent on the Wind power sector for 60-65% of it’s revenue.
2 in last three quarters the company has reported very bad numbers as the wind power shifted to auction based regime. As there were no installation of wind Mills in the last three quarters.
3 Now the transition period is complete.
Company has 80% market share in more then 100 my crane which are needed for wind Mills installations.
Now from next year onwords wind power installations are supposed to be in the range of 8000-10000mw. Which is twice the size of 5400 me wind power installations report in Fy 17. This is not just fancy targets. It can be verified from the auction of wind power in last year 7500 mw
My opinion is that company can easily report 150 crores of sustainable profit on market cap of 791 crores.
Lower then expected wind installations.
Requested senior members to provide the view.
Disclosure not invested yet.
As wind will do better going forward and they already stated that their capacity utilization will be more than 70% in Q4 so it must be net profit positive in 4th qtr.
"Currently, we are working for Bombay Metro, Ahmadabad Project and Chennai Metro
Project and expect few more orders from other Metro Projects like Jaipur, Noida and
Nagpur. There are some signs of business improvement from other sectors like
Refinery, Power, Steel, Cement etc., in next couple of quarters. "
"From other sectors such as Refinery, Thermal Power, Cement and Steel sector we see
some amount of traction in terms of deployment of cranes as the enquiries for
requirements of the cranes has started flowing and we expect to deploy some cranes in
the first and second quarter of next financial year. "
These are comments from company during Q3Fy18 results. so will be icing on the cake as other industries starts capex and green shoots have been seen there too.+ metro projects too.
As you said it has 80% of market share in 100 meter plus wind turbine installation and as per Inox wind presentation it is more efficient to install them at higher heights. On the other hand wind power rate has came down to 2.64 per unit so installer must have to install much efficient turbine to achieve max output. so probability is that more height turbine will be installed and can benefit Sanghvi movers immensely as even they have done last whole capex for such type of cranes.
Sanghvi Movers.pdf (597.1 KB)
This stock looks no brainer now. I am attaching my small presentation herewith.
Disclosure: Invested and my views are biased.
Nicely done analysis. What I have seen with this company though, things can go pretty bad and stock can be available at further cheap levels. In 2004 stock was available at 0.35 P/BV. With company fortunes highly tied to macro, the waiting period can be very long and further 30%-50% low price not ruled out if macro doesn’t play out well. The reason is company due to high fixed cost, will keep losing money. What % certainty do we have about wind power sector reviving by 2019?
There is clear visibility of order flow, with wind auctions start gaining traction. Government is alluding for 10 GW of auctions every year for next 2 years and action is already visible. Management has guided for 70% capacity utilisation in Q4, which to my mind should be higher in FY19. I think last 3 quarters were most distressed period for them in recent history and they were able to manage the things pretty well and even prepaid some of the long term loans during this period.
Nice analysis. I have few question
Do we know the effect of falling wind tariff on Windmill companies? Will they remain profitable at the current tariff rate?
Will this in-turn effect the payments by windmill to Sanghvi movers?
WTG manufacturers are the ones with the most to lose in the value-chain since they have the most investment and most debt as well so they will invariably get squeezed in their margins by the developers as the tariff rate has come down from Rs.4.50 levels to Rs.2.40 levels. Gross Margins are already on a steady downfall from 18% levels to 12%. I expect it to come down to single digit the way things are going.
The power minister himself is asking PFC, REC etc. to stop lending to loss-making discoms. I expect a lot of the receivables in the sector to turn bad quite soon as the next wave of NPAs hit the power sector in FY19.
The complete dry up of trading volume and a very range bound price movement in Sanghvi indicates what Daryl Guppy refers to as the convergence of price and value. In such a scenario, neither the existing investors have an inclination to sell nor new buyers have a desire to buy.
But in markets, such convergence is a temporary phenomenon…it’s soon shattered by a disagreement on price and value as indicated by a big price move.
I am expecting a big move in Sanghvi movers in the near future.Hopefully an upmove.
,those who follow the method of Stan Weinstein…i would like to bring to their attention that…Sanghvi movers has moved above its 30 week sma and also the said 30 week sma too has turned up…
Further sign of bottom formation is that now the the RSI indicator on all time frames…quarterly, monthly, weekly and daily is above 40, indicating a phase change from bearish to bullish phase.
Would you say its better than Suzlon and Inox now on charts?
Yes.technically and fundamentally better than suzlon and inox
Given that Sanghvi movers is heavily dependent upon Wind installations, and now its looking good on charts and fundamentally, I think we should expect better days for Suzlon and Inox as well. Its unlikely that Sanghvi will do well despite poor fundamentals for WTG manufacturers.
Paraphrasing Mark Twain. When a lot of people are digging for gold and you don’t know whom to bet on, bet on the guy selling them the shovels and picks.
That of course is simplifying the problem too much but no one has an idea yet on what margins the WTG manufacturers are going to end up with and Suzlon has a horrible balance sheet as of Sept 2017 (Deteriorated a lot more from Mar 2017). Inox Wind is better placed but their orders I think are going to be pretty low margin.
You have a fair point. IDFC securities has come up with a report on Suzlon giving topline of about 13,000 Crores, margins 14%, EPS 1.4 and TP of 21 for FY20. Seems reasonable. If you are aware of any other brokerage reports, please share.
If you look at the numbers of WTG makers and the IPPS who are regular participants in the wind auction, the number of players are quite limited. In case some smaller / unknown players wish to enter the fray and quote lower prices, the big 3 WTG makers have refused to back them and thus Suzlon and Inox did not participate in the Gujarat auctions.
When the number of players are limited and the total demand for WTG is going to be above the present installed wtg manufacturing capacity in India…then its just a matter of time before an equilibrium level is established whereby all the players would make a reasonable (but not excessive) profits. In economics, this is known as the Nash equilibrium. For companies like Suzlon and Gamesa that would be around 15% Ebidta margin which the managements have committed to protect.
In my opinion, when fierce bidding is going on and market participants are pricing that such price destruction would continue ad infinitum; the investment opportunity in that case is on betting that things will eventually come to an equilibrium…maybe much sooner. If so many cement manufacturers all over india can form a cartel, I don’t see any reason why 3-4 wtg makers cant come to an understanding with maybe 6-7 IPPs…
That’s my rationale for investing heavily in wind power theme…
meanwhile, Sanghvi movers appears to have formed a bottom yesterday and hopefully looks like its going into an uptrend.
Look at the number of players in 2gw auction by SECI
Inox wind participate in 2gw auction and bagged order at Rs. 2.44/kwh
This is something. If I may ask What is the installed WTG in India? Also, how easy/difficult it is for a company to renegotiate a PPA?
I have some understanding of wind industry because of my work in renewable energy. Few points that I can highlight:
- Besides Suzlon,Inox and Gamesa, there are other players like Regen Power
- Large IPPs also have option of buying Wind turbines from Chinese and other players including GE
- Large IPPs have their own teams to do wind resource assessment, they buy their own land bank and can implement wind projects on their own by outsourcing work to players such as K P energy and few other smaller players. If they take this route, they can buy turbines from GE or Chinese /International players
- One of the strengths of Suzlon, Gamesa and Regen in India is that they offer the project on turnkey basis including land, wind resource assessment, supply and commissioning. But they charge a premium for offering these services as compared to a scenario where large IPPs import and implement the project on their own
- Given the very low tariffs in bidding, IPPs/bidders would want to lower the project costs and exert pressure on WTG suppliers. This needs to be borne in mind while evaluating Suzlon and Inox (given their state of financial distress)
- Irrespective of which WTG supplier wins, Crane suppliers may benefit.
- Solar as an alternative may face some challenges in near future (for projects that have not been auctioned so far), because of discussion and possible threat of introducing safeguard duty on import of Chinese modules. We do not have domestic capacity to manufacture solar modules to meet the demand. This may benefit wind sector and demand for WTG and crane suppliers.
Given the tariff and revenue per windmill is lower, why wouldn’t windmill player try to squeeze the margins of crane suppliers?
Margins of sanghvi are structured in such a manner that they recover the cost of new crane in 7 years and old crane in 5 years. Anything less than that puts their business model at risk. Sanghvi will try to maintain it’s margins