The Hindu Business Line : Sanghvi Movers: Buy

Investors with a one to two-year perspective can consider taking an exposure in Sanghvi Movers, one of the largest crane-hiring companies in India. At current market price, the stock trades at about 12 times its likely FY08 earnings per share.

With a market share of more than 50 per cent in the crane-hiring market in India, Sanghvi Movers is likely to be a leading beneficiary of the robust demand environment for such services.

This apart, an expansion in capacities and market presence also point to strong earnings growth. Sanghvi derives a significant portion of its revenues from windmill manufacturers, mainly Suzlon Energy. A robust order-book for Suzlon and the increase in sops and tax rebates for wind power generation could translate into strong order flow for Sanghvi. Though the company's recent earnings performance has been unimpressive, this is unlikely to be the trend over the next few quarters. For the quarter ended December 2006, revenues dipped by about 12 per cent in comparison to the corresponding quarter last year and profits declined by about 31 per cent.

The blip in sales can be explained by a base effect caused by the shutdown of Reliance's Jamnagar refinery in the third quarter of last year.

This generated additional sales for Sanghvi. Apart from lower revenues, earnings were impacted by a change in depreciation method and higher interest costs. Though these charges could continue to expand costs, we expect this to be offset by strong volume growth.

In an effort to increase it market presence, Sanghvi has lined up a capex of Rs 330 crore for FY08. Margins are also likely to get a boost from the proposed merger of its group company, Sanghvi Projects with itself. This apart, the recent acquisition of land in Mumbai-Pune highway could also contribute to savings on transportation cost for equipment.

The risks to business arise from the capital-intensive nature of this business; Sanghvi's ability to manage the overall utilization of its cranes is crucial. This apart, high dependence on the wind power segments for earnings, is also a risk as any slowdown in this segment could pressure performance.

Srividhya Sivakumar

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