>Sanghvi Movers

CMP: 780

Asia’s largest fleet owner of Cranes is now moving into a new growth path, with the placement of 8.8 lakh shares at a price of Rs 825 per share to Goldpeak Ltd-a subsidiary of Aria Investment Partners III, LP.

In addition, Sanghvi Movers is raising the investment limit for FIIs from the present 35 per cent to 45 per cent, underscoring the tremendous institutional interest in the stock.

Moving to higher growth

• Sanghvi Movers is one of the largest crane hiring companies in Asia, with a fleet of 225 medium-to-large sized Hydraulic Truck Mounted Telescopic and Lattice Boom Cranes and Crawler Cranes with lifting capacity of 20 tons to 800 tons. Sanghvi Movers is one of the largest crane hiring companies in Asia, with a fleet of 225 medium-to-large sized Hydraulic Truck Mounted Telescopic and Lattice Boom Cranes and Crawler Cranes with lifting capacity of 20 tons to 800 tons.
  
• Sanghvi has set up 8 depots at various locations to facilitate manoueverability and turnaround time for its fleet of heavy duty cranes. The depots are further supplemented with 70 trailers owned by Sanghvi, which enable the transportation of cranes.
• Sanghvi serves the Economic growth engines in sectors such as engineering, power, refineries and steel, which have witnessed significant growth over the last few years. Moreover all these sectors are in a major expansion phase with massive order booking and capex in pipeline.
  

Solid Clientele

Sanghvi’s major clients include

• Suzlon Energy,
  
• Reliance Industries,
  
• Enercon,
  
• BHEL,
  
• Grasim,
  
• Tata Steel and
  
• L&T.
  

At present over 50 per cent of Sanghvi’s revenues come from the windmill segment, with Suzlon Energy Ltd. (SEL) being its largest customer and Reliance Industries it’s second largest customer, accounting for around 20 per cent of revenues. Both Suzlon and RIL are undergoing their own expansions and it is logical that Sanghvi will benefit from their growth.

While RIL is setting up a US $ 6 bn refinery at Jamnagar, Suzlon too has a rapidly growing order book in excess of US $ 1 bn. is also growing rapidly.

Moreover, the Indian wind energy market has grown at an average annual pace of 35.7% for the past three years compared with 22.8% for the global market. As a result Suzlon is presently the world's fifth-largest wind turbine manufacturer and with a market share of over 50 per cent is a dominant turbine supplier to the Indian market. Since each windmill requires cranes for its erection, Sanghvi will greatly benefit from the growth of Suzlon Energy.

Sanghvi is Scaling Up operations

Sanghvi is in the midst of an expansion programme costing Rs 340 crore. In FY06 it added 46 cranes (capex of Rs1.7bn) and will conclude FY07 with an additional 30 cranes (Costing Rs1.6bn). While the capex in FY06 was largely funded by debt, Sanghvi placed 6 lakh warrants to promoters at Rs700 per share in the summers and will place 8.8 lakh shares with Goldpeak at Rs 825. Equity will rise to Rs 8.1 crore by end FY07.

Financials are getting stronger

Sanghvi Movers is likely to report Revenues of Rs 210 crore for FY07 ( a growth of 42 per cent over FY06), thereafter rising to Rs 300 crore in FY08, another growth of 40 per cent on FY07 numbers. Driven by rising crane acquisitions and increasing demand, we expect sales growth CAGR of 35% and earnings growth of 54% over FY06-08E.

Sanghvi’s cash earning per share is substantially more than its reported earning per share, due to a very large depreciation cost. Thus cash profits are much higher than projected EPS of 58 for FY07 and projected EPS of Rs 85 for FY08.

At the CMP of Rs 750, Sanghi trades at 12.9 XFY07 earnings and at 8.8 times FY08E EPS and 4.7x FY08E CEPS. Given the continued visibility on earnings growth in the medium term and expected boost from new crane acquisitions in FY07, the Sanghvi stock is likely to provide significant gains going into CY07.

From Rajiv handa