Professional Documents
Culture Documents
1
For private circulation only
COMPANY BACKGROUND
Sanghvi Movers, flagship of the Sanghvi Group, is India’s largest crane operator and among
the top 5 largest crane hiring companies in Asia. It is ranked 15th globally by Cranes International, a
UK based leading magazine tracking the global crane providers.
It has a fleet of around 250 medium to large-sized heavy duty hydraulic truck-mounted tele-
scopic and lattice boom cranes and crawler cranes, with lifting capacity ranging from 20 tonnes to
800 tonnes. Sanghvi provides these cranes for heavy lifting, plant erection and maintenance services
to various industries in infrastructure and core sector areas, which includes include power, refineries,
steel and cement. It undertakes implementation of turnkey projects, which includes providing of well-
maintained equipments, expert technical services and skilled manpower.
The company also has a fleet of 75 trailers, which it uses to transport cranes in parts to reduce
its dependence on outside transport service. Sanghvi has also set up 8 depots at various locations
across the country to save on cost and time required for mobilisation of cranes.
The company’s major clients include Suzlon Energy, Reliance Industries, Enercon, BHEL, Grasim,
Tata Steel, L&T (ECC group), etc. The company has diversified its business activities by venturing in
power generation. It has wind mills of 5.05 MW installed in Rajasthan and Karnataka.
A Liebherr LR 1400-2 crawler crane A Krupp GMT 350 hydraulic truck mounted crane
Source: Company
2
For private circulation only
INVESTMENT RATIONALE
I) Thrust on infrastructure to spur demand for cranes
Sanghvi’s fortunes are directly related to industrial and infrastructure growth. The government has unveiled
several initiatives to boost infrastructure and facilitate investment into the sector. Cranes are an essential
component for infrastructure building and with the massive investments lined up – both by the government
and private sector – we expect the company to benefit from increased demand. The company mainly pro-
vides services to core sectors like construction, power, refineries, steel and cement. These sectors are wit-
nessing phenomenal growth and have lined up huge capex.
The investment in creating and upgrading infrastructure over FY07-12E has been estimated at a whopping Rs
1,400,000 crore. Sanghvi Movers, the largest crane operator in the country will be the biggest beneficiary.
Due to a sustained rise in crude prices over the last decade, investments in alternate technologies for energy like
windmills have grown multi-fold. In the 11th Five-Year plan (2007-12), the government has proposed an installed
capacity of 10,000 - 12,000 MW of renewable energy through wind power. The windmill segment currently ac-
counts for over 60% of Sanghvi’s revenues, with Suzlon being its largest customer. Suzlon, which is expanding
very rapidly, has entered into a long-term contract of 39 months with Sanghvi for supply of cranes.
Reliance Industries, another large customer, is also expanding capacity. Reliance Petroleum, its subsidiary, is
building a 29 million tonnes petroleum refinery-cum-SEZ complex in Jamnagar, Gujarat and has booked cranes
from Sanghvi.
The company also provides cranes for the annual maintenance shutdown of the plants, which are of short
duration.
3
For private circulation only
II) Dominant position in the crane-hiring business in India
Sanghvi enjoys a leadership position in the domestic crane-hiring market with an almost 50% market share.
It has a fleet of 250 cranes, which include medium to large sized heavy duty hydraulic truck-mounted tele-
scopic and lattice boom cranes and crawler cranes, with lifting capacity ranging from 20 tons to 800 tons.
Currently, more than 87% of the total gross block includes cranes with a lifting capacity above 100 tonnes.
The margins get better with higher tonnage. The company’s strategy is to deploy most of its cranes for
medium to long-term basis, which provides stability to earnings, besides increasing utilisation rates. Sanghvi
boasts of a marquee clientele, which includes Suzlon Energy, Reliance Industries, Enercon, BHEL, Grasim,
Tata Steel, L&T, etc.
Due to the industrial slowdown, which started in the late 1990s, Sanghvi’s fortunes took a downturn and sales
plummeted from Rs 51.5 crore in FY99 to Rs 22.4 crore in FY02. Income as percentage of gross block, a key metric
in this business, dropped from 46% in FY99 to 20% in FY01 and hovered around those levels till FY03. However,
the revival in the Indian economy post 2003 saw a pick up in demand for cranes. At the same time, the rapid
industrialisation in China and the oil-fed boom in the Middle East over the last few years resulted in strong demand
for cranes from these regions. Consequently, crane manufacturers order books are now flooded and the lead-time
for new cranes has shot up to 18 months. The second-hand cranes market is also booming and prices have
increased to almost 80-85% of the prices of new cranes.
This shortage has resulted in crane hiring companies enjoying twin benefits of higher utilisation as well as billing
rates. Sanghvi has seen its sales and income/gross block surge to Rs 149.65 crore and 37% in FY06, which
highlights the change in fortunes.
46%
160 50%
140
32% 40%
120 30% 37%
29%
100 23% 30%
Rs Crore
80 20% 19%
60 20%
40
10%
20
0 0%
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06
4
For private circulation only
III) Aggressive ramp up in crane capacity
From 1999-2003, the company’s gross block was stagnant reflecting the subdued economic scenario of the
time. However, it was quick to anticipate the increase in demand for cranes when the Indian economy started
reviving in 2003 and aggressively ramped up its capacity. Its gross block has since increased 3.5x from Rs
114.3 crore in FY03 to Rs 405.6 crore in FY06 with its fleet expanding to 200 cranes.
Furthermore, Sanghvi has lined up a capex of Rs 330 crore for FY07-08E to increase its crane capacity by
about 30%. It acquired 42 cranes in FY07 and will add another 18-22 cranes in FY08E.
850
737.6
750
650 586.6
550
Rs crore
450 405.6
350
236.6
250
155.7
150 112.4 120.7 117.8 115.4 114.3
50
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E FY08E
The company is financing this expansion by a mixture of debt and equity so as not to increase leverage signifi-
cantly. The promoters are contributing Rs 42 crore by subscribing to 600,000 convertible warrants at Rs 700 per
share, of which they paid Rs 6 crore in May 2006 and the balance Rs. 36 crore shall be brought in FY08 for further
capex. It further raised Rs 72.6 crore by issuing 880,000 equity shares to Goldpeak, a subsidiary of Aria Investment
Partners III, in January 2007 at Rs 825 per share.
Extensive amount of logistics services are required for mobilisation and demobilisation of its cranes. To save cost
and time, Sanghvi has set up eight depots at strategic locations across India, for parking and overhaul of the
cranes once they are demobilised. This helps in improving manoeuvrability and turnaround time for its fleet of
heavy-duty cranes. The depots are further supplemented with 75 trailers owned by Sanghvi, which enable the
transportation of cranes.
These depots are located at strategic locations across the country near industrial activity centres. It has depots at
Pune, Bharuch, Jamnagar (Gujarat), Chennai, Nagpur, Bangalore, Cuttack (Orissa) and Gaziabad (Delhi). We ex-
pect that this will help Sanghvi to increase the operational efficiency and effectively deploy the existing cranes,
thus increasing the average utilisation of assets.
5
For private circulation only
KEY CONCERNS
¾ Any delay in delivery of new cranes ordered, as well as non-availability of second hand cranes, will impact
the growth potential.
¾ 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.
FINANCIALS
Efficient deployment, better price realization and shift towards higher tonnage cranes which have better margins
will drive revenue and earnings going forward. Income is expected to grow at a CAGR of 20.6% from Rs 149 crore
in FY06 to Rs 216.65 crore in FY08E. Net profit is expected to grow at a CAGR of 27.7% from Rs 32.18 crore in FY06
to Rs 52.48 crore in FY08E.
250.00 60.00
200.00 50.00
40.00
150.00
Rs Crore
Rs Crore
30.00
100.00
20.00
50.00 10.00
0.00 0.00
FY04 FY05 FY06 FY07E FY08E
6
For private circulation only
Robust operating margins
The huge capex lined-up by core sector industries coupled with the global shortage of cranes has helped Sanghvi
improve realization on its cranes. Other initiatives like setting up depots across the country, supplemented with a
set of 75 trailers have helped in reducing cost and improve margins. Operating profit margin, which was at 55%in
FY04, is likely to expand to 70.8% by FY08E.
50%
FY04 FY05 FY06 FY07E FY08E
Source: ICICIdirect Research
VALUATIONS
Exhibit 11: P/E Band
1200
22x
1000
18x
800
Share Price (Rs)
14x
600
10x
400
200
0
01-Apr-05 01-Aug-05 01-Dec-05 01-Apr-06 01-Aug-06 01-Dec-06
The stock has been fluctuating in the P/E band of 14x – 18x one-year forward earnings for the last year. At the
current price of Rs 640, the stock is trading at 12.5x its FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7.
On an EV/EBIDTA basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings. Considering
Sanghvi’s dominant position in the crane-hiring business, we believe that it is one of the best proxy plays on the
infrastructure boom. We rate the stock an OUTPERFORMER with a price target of Rs 837, at 15x FY08E earnings,
at the lower level of its historical trading band.
7
For private circulation only
FINANCIAL SUMMARY
Profit and Loss Account
(Rs Crore)
Balance Sheet
(Rs Crore)
Year to March 31 FY08E FY07E FY06 FY05
Capital infusion by promoters Sources of funds
.................................................................................................................................................
and private placement Equity Share Capital 8.78 8.18 7.3 7.3
.................................................................................................................................................
Share Warrants 0 6 0 0
.................................................................................................................................................
Reserves & Surplus 282.7 199.27 73.46 49.46
.................................................................................................................................................
Secured Loans 274.22 264.22 234.22 101.91
.................................................................................................................................................
Unsecured Loans 5 4 3.08 2.45
.................................................................................................................................................
Deferred Tax Liability 25.92 20.92 16.51 17.65
.................................................................................................................................................
Current Liabilities & Provisions 52.09 42.43 28.39 9.5
.................................................................................................................................................
Total Liability 648.7 545.01 362.96 188.27
.................................................................................................................................................
Application of Funds
.................................................................................................................................................
Aggressive ramp-up in crane
capacity Net Block 560.84 457.19 285.77 152.34
.................................................................................................................................................
Capital WIP 0 0 12.41 1.81
.................................................................................................................................................
Investments 0 0 0 0.41
.................................................................................................................................................
Cash 1.2 12.57 3.78 3.27
.................................................................................................................................................
Trade Receivables 54.16 43.75 32.74 19.72
.................................................................................................................................................
Loans & Advances 32.5 31.5 28.24 10.73
.................................................................................................................................................
Miscellaneous Expenditure 0 0 0 0
.................................................................................................................................................
Total Asset 648.7 545.01 362.96 188.27
8
For private circulation only
Cash Flow Statement
(Rs Crore)
Ratios
9
For private circulation only
RATING RATIONALE
ICICIdirect endeavours to provide objective opinions and ecommendations. ICICIdirect assigns ratings to its stocks
according to their notional target price vs current market price and then categorises them as Outperformer,
Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target
price is defined as the analysts’ valuation for a stock.
10
For private circulation only