5 Key Points from the Audited FY24 Results of Sanghvi Movers
- First (unrelated to the Q4 Result), a reminder that a Key Feature of Sanghvi’s business is that its throws out Great Cash Flows (CFO), hence best valued on P/CFO not P/E although for the sake of simplicity I have in the past notes used only P/E.
- Despite a presumably ‘constrained supply’ for Cranes, Yields have not inched up higher than 2.2% (something the market was expectin. Reminiscing the Good ol’ days of 2017).
Of Course, Quarterly numbers have limitations and maybe the next quarter Will see higher yields, who knows, I don’t.
Just for newer investors : Increasing Yields boost profits disproportionally. Yields are basically pricing of the cranes, so a higher yields (rent) means higher Revenue without the higher expenses. That’s why all of yield increases flow to the bottomline. Also, the primary reason for the disproportionate growth in PAT vs Sales (talked more about below)
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Sanghvi is taking on more risk by SPVing around. I’m guessing this is part of their EPC Order book. We don’t know how this will fare but in this quarters con-call I’m sure there will be (or should be) questions around this.
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I would assign this point a very low score in terms of importance at this point. In FY23 AR, a special resolution for MD compensation was passed (need to verify), wherein (if my interpretation is correct) any “variation in remuneration” was approved. Maybe this is a business as usual type of approval but the language seems odd. Although, total compensation to MD is ~2.5-3% of PAT so not losing sleep over it.
- Finally PAT Growth on an yearly basis was great at ~ 79% for a Sales growth of ~33%. This was because of Operating Leverage etc. Do NOT expect this kind of disproportionate growth in PAT vs Sales. To Grow 30% on PAT level from here, co’ needs to grow PAT by ~50 Cr.
This is going to be challenging because every 100 Cr of Investments in Cranes is capable of growing PAT by ~7 Cr (check Diagram below).
so, if the co’ were to rely solely on the Crane Rental it would have to invest ~ 700 Cr. That seems unlikely.
This is why they’re also focusing on the EPC book, which doesn’t require as much capital and is incidental to its existing business. Kind of like, I have Apple orchards, might as well make Apple pie.
But we’ll see how that goes.
Hope this is somewhat useful. Thank you. Please feel free to add/change/correct.
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