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Stock Insight: Well Oiled

Government’s thrust on infrastructure development lifts demand for cranes, prospects of Sanghvi Movers

Sanghvi Movers is India’s largest crane hiring company with a fleet of around 250 cranes.

The company has medium to large-sized heavy duty hydraulic truck-mounted telescopic and lattice boom cranes and crawler cranes with a lifting capacity ranging from 20 tonnes to 800 tonnes. The company also has a fleet of 75 trailers and has eight depots across the country to cater to clients at various locations. The company’s major clients include Suzlon Energy, Reliance Industries, Enercon, BHEL, Grasim, Tata Steel, L&T (ECC group) etc.

The company enjoys a leadership position in the domestic crane hiring market with a 50 per cent share.

The government’s thrust on infrastructure projects will spur demand for cranes. The government has introduced several initiatives to boost infrastructure and massive investments are proposed between 2007 and 2012. Sanghvi Movers will be a major beneficiary of this move.

The company’s cranes are used for heavy lifting, plant erection and maintenance services to various industries in infrastructure and core sector, which include power, refineries, steel and cement. To capitalise on the rising demand, the company has been adding capacities and ramping up its fleet size. It has lined up a capex of Rs 330 crore for FY 2007-08 to further boost its fleet by 60-65 cranes. Of this, it completed its expansion of Rs 180 crore in the last financial year. The company has also diversified into new areas such as wind power generation. It has wind mills of 5.05 mw in Rajasthan and Karnataka.

Sanghvi Movers’ cranes are used in every major project undertaken by the India Inc. Currently, the company is expected to gain from the Rs 27,000-crore capex marked by Reliance Industries for setting up its 29 million tonne refinery at Jamnagar and an SEZ complex, Indian Oil’s 15-million tonne refinery at Paradeep in Orissa, Mittal Steel's 12-million tonne steel plant in Jharkhand and Orissa, JSW Steel's new project at Jharkhand and Tata Steel's Kalinganagar Steel project in Orissa.

The company’s other top clients are on an expansion drive and this will auger well for the company. For example, Reliance Energy is setting up a 12,000 mw thermal power plant in Orissa, Grasim is executing three projects in Orissa for Rs 3,600 crore and UltraTech Cement is expanding capacity of its units in Gujarat, Andhra Pradesh and Chhattisgarh. Also due to the sustained rise in crude prices over the last decade, investments in alternative technologies for energy like windmills have grown multi fold. In the Eleventh Five Year Plan, the government has proposed an installed capacity of 10,000-12,000 mw of renewable energy through wind power. The windmill segment currently accounts for over 60 per cent of Sanghvi’s fortunes with Suzlon being its largest customer. Suzlon, which is expanding rapidly, has entered into a long term contract of 39 months with Sanghvi for supply of cranes. Sanghvi also provides cranes for annual maintenance shutdown of plants which are of short duration.

Currently, more than 87 per cent of the total gross block of the company includes cranes with a lifting capacity of above 100 tonnes. The margins get better with higher tonnage. The company’s strategy is to deploy cranes for medium to long-term basis, which provides stability to earnings besides increasing utilisation rates.

Sanghvi Movers suffered a downturn during the industrial slowdown in the late 1990s. However, in 2003, the company saw a revival in its fortunes when the industrial demand was boosted by rapid industrialisation of China and oil-fed boom in the Middle East. Consequently, the heightened industrial activity in these countries saw the demand for cranes shoot up. The 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 per cent. The high demand for cranes has resulted in twin benefits for the crane hiring companies of higher utilisation as well as billing rates. Sanghvi has seen its sales and incomes/gross block surge to Rs 150 crore (37 per cent) in FY 06, which highlights the change in fortunes. After a period of stagnation from 1999-2003, Sanghvi Movers was quick to anticipate a spurt in demand and aggressively ramped up its capacity. The company’s Rs 330-crore capital expenditure will increase its crane capacity by 30 per cent. The company acquired 42 cranes and will add around 20 in the current financial year. The company is financing its expansion by a mixture of debt and equity so as not to increase leverage significantly.

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 FY 08. The company further raised Rs 72.6 crore by issuing 8,80,000 equity shares to Goldpeak, a subsidiary of Aria Investment Partners in January this year at Rs 825 per share. The business that Sanghvi Movers is in requires very meticulous planning of logistics for mobilisation and demobilisation of its cranes. To save cost and time, the company has set up eight depots across the country for parking and overhaul of the cranes once they are demobilised. The company’s depots are located near industrial activity centres. It has depots at Pune, Bharuch, Jamnagar, Chennai, Nagpur, Bangalore, Cuttack and Ghaziabad.

Increased average utilisation of assets will lead to higher operational efficiency.

Source: Idirect