Sanghvi Movers: Buy

Sanghvi Movers: Buy

A reputable player in the crane-hiring business, Sanghvi Movers makes for an attractive investment despite the slowing economy, given its large fleet size, diverse user industry base and virtual monopoly in the higher tonnage cranes segment.
The company’s long-standing business liaisons with companies such as Reliance Industries, Suzlon Energy and BHEL may also stand it in good stead, as these companies are less vulnerable to a slowdown in investments in their core business.
At the current market price of Rs 68, the stock trades at about three times its likely FY09 per share earnings. Investors, however, can consider phasing out their exposure given the heightened volatility in the broad markets.
After having aggressively added to its capacity over the last couple of years, Sanghvi has, in keeping with the slowing economy, cut down on its capex plans. In the next fiscal, the company plans to spend only Rs 30-40 crore on improving capacity, which the management has indicated can go up to Rs 100 crore (towards delivery of the 1,400-tonner crane) if the erection works in Bhatinda and Bina refinery projects begin during the year.
This cautious approach towards capacity addition appears prudent in these times as it will not only help Sanghvi put its existing fleet to better use and keep utilisation levels steady (currently pegged at about 85 per cent), it will also help it divert funds towards reducing its debt burden, which it plans to wipe away completely in three years.
The company also enjoys a fairly strong demand visibility, though many infrastructure companies are going slow on their expansion plans. The company’s increasing exposure to the power sector may help keep its revenue stream steady as the sector is likely to see continued investments in future.
That Sanghvi has emerged as the sole bidder in many of BHEL’s tender-based order and is the front-runner for Sasan UMPP project underscores its position in the sector. However, the company’s long-term contracts with Suzlon may bear a close watch as they are up for renegotiation in March 2009.
For the quarter ended December 2008, the company reported a healthy 38 per cent and 35 per cent growth in revenues and profits respectively. But it is the performance at the operating level that commands particular attention. Sanghvi boasts of an operating margin of over 75.5 per cent (up 290 basis points), which lends comfort on its ability to weather the ongoing slowdown. While high interest and depreciation cost moderated net profit growth, growth remains at levels healthy enough to provide comfort on valuations.