Sanghvi Movers - Business continues to be under pressure; cheap valuations, Hold - Anand Rathi

Severe, 34.4%, sales decline. In 4QFY13 Sanghvi Movers reported revenues of Rs. 794m (down 34.4% yoy), 3.2% above our estimated Rs. 769m. The proportion of revenue from its wind-turbine and power businesses has come down. Overall utilization levels fell to 75% in FY13 (86% in FY12), indicating sluggish demand for cranes.

Margins decline 505bps. The EBIDTA margin was 62.3%, dropping 505bps yoy due to the larger provision for doubtful debts, which went up yoy to Rs. 10m. The contraction also stemmed from lower yields due to keener competition, almost non-existent overtime revenue and to discounts given. Yields continue to be under pressure and, ahead, are expected to be lower.

Net profit declined a whopping 71.6% yoy. Net profit fell 71.6% yoy, to Rs. 70m (79.6% better than we estimated), largely due to lower revenue and a 39.3% drop in EBITDA. Utilization of cranes too was lower during 4QFY13.

Our take. Keener competition from foreign operators at lower rates and a slowdown in fresh investment resulted in the lower planned capex for the next two years. The company has been struggling due to delays in executing wind and power projects and the slowdown in steel and cement capacity expansions. Its cranes are operating at lower utilisation and yields, and the company is grappling with bad-debt issues. Given the challenging business environment, we reduce our estimated FY14 and FY15 revenue respectively 18% and 13.7% yoy, and profit 55.9% and 31.8%. Despite the adversities, on account of the inexpensive valuations we continue to have a Hold rating. Though we are not enthused by the short-term outlook, we believe that the stock-price correction has been overdone. We assign a one-year-forward PE of 7x and derive a target of Rs. 78. At the ruling price, it trades at PE of 10.1x FY14e and 4.1x FY15e. Risk. Further demand deterioration in infrastructure and wind power.

Source : Equity Bulls

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