Tuesday, November 29, 2011

>SANGHVI MOVERS: Demand sluggish, margins retained; we maintain a Buy at lower PT

Despite attractive valuations, the environment and outlook for Sanghvi Movers is challenging. However, business from the wind-energy and power sectors continues to grow, with fleet utilization up, to 84%. Despite lower yields, it holds to plans for `2.3bn capex in FY12. We retain a Buy but at a lower price target of `142 (earlier `194).

 Challenging environment; Sanghvi rethinks FY13 expansion. Due to the recession, foreign competition is looking to hire out cranes in India, at cheaper rates. Within India too, there have been delays in the execution of power projects and a slowdown in steel and cement capacity build-up. Sanghvi had bought 33 cranes for `1.5bn in 1HFY12, and is going ahead with its planned `2.3bn capex for FY12. However, considering the current challenging environment, it has not finalized FY13 capex.

 2Q revenue up 22.6%; margin maintained, profit down 40.8%. Sanghvi’s 2Q revenue growth was 22.6% yoy, in line with our estimate. Demand for cranes continues in power and wind turbines, and resulted in 84% utilization in 2Q for Sanghvi. The EBITDA margin was 71%, a 32bps yoy contraction, in line with our estimate. During the quarter overtime revenue was 6.2% of sales (~10% a year ago). Profitability was down 40.8% yoy, owing to one-offs during the quarter. Adjusted for this, net profit was 14.4% lower.

 We introduce FY14 estimates. For FY14, we expect revenue growth of 6.3% over FY13, with capex of `1.2bn in FY14 (`1bn in FY13e). We estimate 14.5% earnings growth in FY14 over FY13.

 Valuation. We lower FY12 and FY13 earning estimates 0.7% and 14.7%, respectively, to factor in an expected demand slowdown. The stock trades at 5x FY12e and 4.5x FY13e earnings. We re-iterate a Buy. Risks: lower demand, higher interest rates.

To read the full report: SANGHVI MOVERS