Despite attractive valuations, the environment and outlook for Sanghvi Movers is challenging. Business from the wind-energy and power sectors continues to be sluggish with fleet utilisation much below capacity.
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 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 re-iterate Risks of lower demand, higher interest rates. SELL.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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