The Hindu Business Line : Sanghvi Movers: Buy

AN exposure may be considered in the stock of Sanghvi Movers, as its investment plans could lead to a significant boost to revenues and earnings growth over the next couple of years.

The company is well placed to benefit from the buoyant trends in the engineering, construction, power and oil sectors, as it provides infrastructure support services. The massive order book of engineering and construction companies point to good growth prospects.

The stock trades at a price-earnings multiple of less than ten times its expected earnings from FY 07. Buy this small-cap stock with a one- to two-year perspective. The principal risk to our recommendation will be delays in implementation of projects that could lead to a slower-than-expected revenue growth.

Sanghvi Movers owns a fleet of about 200 cranes and has a small presence in wind power generation business. It has a far greater variety in its fleet of cranes now than a couple of years ago and this should enable it to broadbase its clientele. Even as it has recovered after a protracted period of lacklustre growth, Sanghvi Movers has been on investment mode.

It has taken on a substantial debt burden to bankroll its fleet of cranes. By the end of March 2006, the company would have invested about Rs 250 crore in its expansion plan over a two-year period. The benefits are likely to reflected in revenues, and, to a lesser extent, in earnings from FY 07 onwards. There has been a sharp rise in interest and depreciation charges and this trend is likely to continue. Despite this factor, the buoyancy in revenues and healthy operating profit margins has led to impressive earnings growth.

As its debt burden has risen sharply, we would view any equity mobilisation effort as a positive, though this could lead to a near-term dilution in per share earnings. But even without such an exercise, it should be able to comfortably tackle the debt burden, as its cash flows from operations have been improving.

S. Vaidya Nathan

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