Company Report

Price Target Price

Rs 640 Rs 837
Sanghvi Movers
Engineering - Turnkey Services Potential upside Time Frame
April 03, 2007
OUTPERFORMER 31% 12 mths
ICICIdirect Code: SANMOV Sanghvi Movers, India’s largest crane-hiring company, is a proxy on the in-
dustrial and infrastructure boom in the country. Its aggressive ramp- up in
crane capacity has coincided with a severe shortage of cranes globally, which
Company Profile should lead to robust growth in revenue and profits over the next few years.
Registered Office We initiate coverage on the company with an OUTPERFORMER rating.
Survey No 92, Tathawade,
Taluka Mulshi, INVESTMENT RATIONALE
Pune - 411033,
‰ Thrust on infrastructure to spur demand for cranes
Maharashtra
Website: www.sanghvicranes.com Cranes are an essential component for infrastructure building. The
government has unveiled several initiatives to boost infrastructure and
Chairman & MD : C P Sanghvi investment amounting to Rs 1,400,000 crore have been planned over FY07-
Business Group: Sanghvi 12E. We believe this will create huge demand for cranes and Sanghvi
Movers will be a major beneficiary.

Shareholding Pattern as on 31/12/2006 ‰ Dominant player in the crane-hiring business

Major Holders % Sanghvi enjoys a leadership position in the domestic crane-hiring market
Promoters 47.21 with an almost 50% market share. It is India’s largest crane operator and
Institutional Investors 33.83 among the top 5 largest crane hiring companies in Asia. It is ranked 15th
Other Investors 5.19 globally by Cranes International, a UK based magazine tracking the glo-
General Public 13.77 bal crane providers.

‰ Aggressive ramp up in crane capacity

Stock Data
Market Cap (Rs crore)
Shares Outstanding (in crore)
52-week High (Rs)
52-week Low (Rs)
Avg. Volume
Absolute Return 3 mth (%)
Absolute Return 12 mth (%)
Sensex Return 3 mth (%)
Sensex Return 12 mth (%)
Performance Chart
To capitalise on the rising demand, the company has been adding capaci-
523.3
ties and ramping-up its fleet size. It has lined up capex of Rs 330 crore for
0.82
FY07-08E, to further boost its fleet by another 60-65 cranes. Of this it has
913.0
completed expansion of Rs 180 crore in FY07.
563.0
5,167
-13.8 VALUATIONS
-13.5
At the current price of Rs 640, the stock is trading at a P/E multiple of 12.5x its
-4.3
FY07E EPS of Rs 50.9 and 10.7x its FY08E EPS of Rs 59.7. On an EV/EBIDTA
18.5
basis, the stock is available at 6.3x FY07E earnings and 5.4x FY08E earnings.
Given the company’s dominant position in the crane-hiring market and the
capex boom in India, we believe that the stock is undervalued. We rate the
stock an OUTPERFORMER with a 12-month price target of Rs 837, at 14x FY08E
earnings, an upside potential of 31%.

Exhibit 1: Key Financials

Year to March 31 FY05 FY06 FY07E FY08E
Net Profit (Rs crore) 13.70 32.18 41.66 52.48
EPS (Rs) 18.77 44.10 50.95 59.79
% Growth 121.6% 134.9% 15.5% 17.3%
P/E (x) 34.09 14.51 12.56 10.70
Siddhartha Khemka
siddhartha.khemka@icicidirect.com Price/Book (x) 8.23 5.78 2.52 1.93
EV/EBIDTA (x) 12.35 7.06 6.35 5.46
ICICI Brokerage Services Limited, NPM (%) 18.06 21.51 23.65 24.17
2nd Floor, Stanrose House, RoNW (%) 24.13 39.85 20.08 18.00
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025 RoCE (%) 15.35 19.99 18.13 18.65
Source: ICICIdirect Research

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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.

Exhibit 2: Sanghvi Movers cranes at work

A Liebherr LR 1400-2 crawler crane A Krupp GMT 350 hydraulic truck mounted crane

Source: Company

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 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.

Exhibit 3 : India Inc’s major capex projects

Sector Company Project Place Capex

(Rs crore)
Refineries Reliance Industries 29 million tonnes refinery, SEZ complex Jamnagar, Gujarat 27,000
Indian Oil Corporation 15 million tonnes refinery cum petrochemicals complex Paradip, Orissa. 25,000
Steel Posco Steel SEZ Orissa 52,000
Mittal Steel 12 million tonnes steel plant Jharkhand / Orissa 40,000
JSW Steel Jharkhand Steel Project Jharkhand 35,000
Tata Steel Dubri (Kalinganagar) Steel Project Orissa 15,000
Power NTPC Hydel Power Project Arunachal Pradesh 20,000
Reliance Energy 12,000 MW thermal power project Hirma, Orissa 60,000
Suzlon Energy Kachchha Wind Power Project Gujarat 2,200
Cement Grasim 3 projects Orissa 3,600
UltraTech Cement Expansion of units Gujarat, Andhra Pradesh 2,700
and Chhattisgarh

Source: CMIE, ICICIdirect Research

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.

Beneficiary of rising crude prices

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.

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 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.

Exhibit 4 : Marquee clientele

Power Oil & Refineries Cement Metal Engineering Others

Suzlon Reliance Grasim Tata Steel L&T- ECC Tata Chemicals
Enercon ONGC Ultra Tech Vedanta Resources Bechtel Indogulf
Windia Power MRPL ACC Ispat Samsung Engineering
NTPC Indian Oil Gujarat Ambuja Indian Charge Chrome Hyundai
BHEL GAIL Rolls Royce
Source: Company, ICICIdirect Research

Favourable global scenario

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.

Exhibit 5: Sharp improvement in operations

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

Income Income/GB (RHS)

Source: Company, ICICIdirect Research

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 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.

Exhibit 6 : Capacity addition (number of cranes)

Second-hand Brand new Total additions

FY07 28 14 42
FY08 08-10 10-12 18-22
Source: Company, ICICIdirect Research

Exhibit 7: Trend in gross block

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

Source: Company, ICICIdirect Research

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.

Setting up of depots to save time & cost

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.

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 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

Exhibit 8 : Key Assumptions

Sales FY07E FY08E

Average Utilisation 83% 85%
Avg. Realisation per month
(% of gross block)
2nd Hand Cranes 3.25% 3.25%
New Cranes 2.25% 2.25%
Source: ICICIdirect Research

Income from operations and net profit to surge

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.

Exhibit 9: Projected revenues and net profit

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

Income Net Profit (RHS)

Source: ICICIdirect Research

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 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.

Exhibit 10: Improving operating margins

75%
70.8%
69.5%
70%
66.2%
65%
60.4%
60%
55.3%
55%

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

Source: ICICIdirect Research

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.

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 FINANCIAL SUMMARY
Profit and Loss Account
(Rs Crore)

Income to grow at CAGR of

Year to March 31 FY08E FY07E FY06 FY05
21% over FY06-FY08E Income from Operations 216.65 175.01 149.05 75.38
.................................................................................................................................................
% Growth 23.80% 17.40% 97.70% 64.70%
.................................................................................................................................................
Total Expenditure 63.31 53.43 50.44 29.86
.................................................................................................................................................
Operating Profit 153.34 121.58 98.61 45.53
.................................................................................................................................................
% Growth 26.10% 23.30% 116.60% 79.90%
.................................................................................................................................................
Other Income 0.43 1.14 0.6 0.49
.................................................................................................................................................
EBIDTA 153.77 122.72 99.21 46.01
.................................................................................................................................................
EBIDTA margin (%) 70.84% 69.67% 66.30% 60.65%
.................................................................................................................................................
Depreciation 47.35 35.4 35.64 21.28
.................................................................................................................................................
EBIT 106.42 87.32 63.57 24.73
.................................................................................................................................................
% Growth 21.90% 37.40% 157.10% 112.80%
.................................................................................................................................................
Interest 29.32 25.48 13.72 4.67
.................................................................................................................................................
PBT 77.1 61.84 49.85 20.06
.................................................................................................................................................
% Growth 24.70% 24.00% 148.50% 108.10%
.................................................................................................................................................
Taxation 24.63 20.18 17.67 6.36
Net profit to grow at CAGR of .................................................................................................................................................
28% over FY06-FY08E PAT 52.48 41.66 32.18 13.7
.................................................................................................................................................
% Change YoY 26.00% 29.50% 134.90% 121.60%
.................................................................................................................................................
Extraordinary Items 0 17.12 0 0
.................................................................................................................................................
Shares O/S (crore) 0.88 0.82 0.73 0.73
.................................................................................................................................................
EPS (Rs) 59.79 50.95 44.1 18.77
.................................................................................................................................................

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

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 Cash Flow Statement
(Rs Crore)

Year to March 31 FY08E FY07E FY06 FY05

.................................................................................................................................................
Opening Cash Balance 12.57 3.78 3.27 2.6
.................................................................................................................................................
Profit after Tax 52.48 58.79 32.18 13.7
.................................................................................................................................................
Misc Expenditure w/off 0 0 0 0.13
.................................................................................................................................................
Dividend Paid -5.05 -4.7 -8.18 -4.09
.................................................................................................................................................
Depreciation 47.35 35.4 35.64 21.28
.................................................................................................................................................
Provision for deffered tax 5 4.41 -1.14 2.16
.................................................................................................................................................
Cash Flow before WC Changes 99.78 93.89 58.5 33.18
.................................................................................................................................................
Net Increase in Current Liabilities 9.66 14.04 18.89 2.52
.................................................................................................................................................
Net Increase in Current Assets -11.4 -14.27 -30.54 -13.23
.................................................................................................................................................
Cash Flow after WC Changes 98.03 93.67 46.85 22.47
.................................................................................................................................................
Purchase of Fixed Assets -151 -194.4 -179.67 -84.5
.................................................................................................................................................
(Increase) / Decrease in Investment 0 0 0.4 -0.39
.................................................................................................................................................
Increase / (Decrease) in Loan Funds 11 30.92 132.94 63.08
.................................................................................................................................................
Increase / (Decrease) in Equity Capital 30.6 78.6 0 0
.................................................................................................................................................
Net Change in Cash -11.37 8.78 0.51 0.67
.................................................................................................................................................
Closing Cash Balance 1.2 12.57 3.78 3.27

Ratios

Year to March 31 FY08E FY07E FY06 FY05

EPS (Rs.) 59.79 50.95 44.1 18.77
.................................................................................................................................................
Book Value (Rs. Crore) 332.08 253.69 110.67 77.78
.................................................................................................................................................
Enterprise Value (Rs. Crore) 839.75 778.99 700.53 568.11
.................................................................................................................................................
EV/Sales (x) 3.88 4.45 4.7 7.54
.................................................................................................................................................
EV/EBIDTA (x) 5.46 6.35 7.06 12.35
.................................................................................................................................................
Market Cap to sales (x) 2.59 2.99 3.13 6.2
.................................................................................................................................................
Price to Book Value (x) 1.93 2.52 5.78 8.23
.................................................................................................................................................
Operating margins to improve
significantly Operating Margin (%) 70.78 69.47 66.16 60.39
.................................................................................................................................................
Net Profit Margin (%) 24.17 23.65 21.51 18.06
.................................................................................................................................................
RONW (%) 18 20.08 39.85 24.13
.................................................................................................................................................
ROCE (%) 18.65 18.13 19.99 15.35
.................................................................................................................................................
Reduction in D/E ratio despite
of Rs 330 crore capex Debt/ Equity (x) 0.96 1.26 2.94 1.84
.................................................................................................................................................
Current Ratio 1.69 2.07 2.28 3.55
.................................................................................................................................................
Debtors Turnover Ratio 4 4 4.55 3.82
.................................................................................................................................................
Fixed Assets Turnover Ratio 0.39 0.38 0.5 0.49

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 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.

Outperformer: 20% or more;

Performer: Between 10% and 20%;
Hold: +10% return;
Underperformer: -10% or more.

Harendra Kumar Head - Research harendra.kumar@icicidirect.com

ICICIdirect Research Desk

ICICI Brokerage Services Limited,
2nd Floor, Stanrose House,
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025
research@icicidirect.com
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