Recommendation: Buy
CMP = Rs 250
Price target: Rs 298
Key points:
- Large investments in core sectors like refineries, windmills, petrochemicals, cement and power will create huge demand for cranes. Sanghvi Movers Ltd (SML) which is the largest player in crane hiring business in the country is likely to corner a large share of the opportunity
- In the first nine months of FY2008, SML added 16 cranes to its fleet and is expected to add another 22 cranes in the Q4FY2008. By the end of FY2008, SML would have a fleet size of 283 cranes with capacity ranging from 20 to 800 tonne. The fleet would be the biggest in the country and the wide tonnage range would enable SML to provide unmatched service.
- In FY2010, I estimate SML to clock revenues of Rs 407.1 crore though yields are likely to be lower. I expect its revenues to grow at a compounded annual growth rate (CAGR) of 31.6% over FY2007-10E. Stable operating performance should help the bottom line to grow at a CAGR of 31.8% over FY2007-10E.
- SML plans to spend Rs 200 crore in FY2008, Rs 390 crore in FY2009 and Rs 100 crore in FY2010 to acquire more cranes. The robust top line growth and stable operating performance resulted in a strong profit growth during the quarter.
- On increased capital expenditure (capex) guidance, I recommend Buy option on this stock with a price target of Rs 250 over next 4 months.
