In August 2013, Sanghvi Movers faced the ignominy of being unceremoniously thrown out of the investment radar. In a terse note (pdf), ICICIDirect declared that on account of bleak demand scenario and dismal prospects for Sanghvi Movers, it was “dropping coverage” of the stock. It advised investors to “exit the stock”.
Since that low point in its career, Sanghvi Movers has staged a dramatic 180 degree turnaround. On 26th June 2014, Prashant Jain, stock wizard with HDFC Mutual Fund, gave it the ultimate vote of confidence when he scooped up a massive lot of 4.96L shares at Rs. 141 each.
To understand the dynamics of Sanghvi Movers, we have to turn to Ashish Chugh’s analysis of 2012. Ashish pointed out that Sanghvi Movers is the largest crane services company in the country, the third largest crane services company in Asia and seventh largest crane owning company in the world. It has a wide range of cranes starting from 20 tones going up to 800 tones. It caters primarily to the industrial segment where it rents cranes for construction of steel plant, cement plant, wind power and these cranes are also used in the construction and infra sector. It is also into logistics services business where it does over-dimensional consignments, which have to be transported over difficult terrains.
Ashish Chugh also emphasized that Sanghvi Movers had a profitable business with an EBITDA margin of 75% and a net profit margin of close to 23%. He explained that though companies with high EBITDA margins and high net profit margins usually trade at high P/Es, Sanghvi Movers had been (at that time) ignored by investors because of the slowdown in the construction, infrastructure and industrial activity.
Of course, now that NAMO is expected to kick-start the economy and construction, infrastructure and industrial activity is expected to pick up, infra stocks like Sanghvi Movers have come back into fashion.
At this stage, you must note that all the savvy investors are slowly but steadily making a beeline for the beaten down infra stocks.
Radhakishan Damani was way ahead of everyone else with his brilliant stocks picks Gati & TCI. His timing was impeccable and he has reaped the maximum gain.
Rakesh Jhunjhunwala was right by his side with his stock pick Nagarjuna Construction. The Badshah disclosed to Menaka Doshi that he (the Badshah) had doubled his holding in Nagarjuna.
Daljeet Kohli homed in on Gujarat Pipavav Port Ltd (GPPL) and reaped a rich harvest.
Now, it is obvious that we cannot be left behind as mere spectators while everyone else takes home the cream. We need to find a nice little infra stock to tuck into.
One practical solution is to grab GS Infra BEES (pdf), an ETF of infra stocks. This takes care of the headache of having to cherry-pick amongst so many. The ETF has blue-chip behemoths like L&T, Power Grid, NTPC, BHEL and also mid/ small caps like Voltas, PTC India etc. So, it is a full portfolio in itself. The ETF has done quite well with a YOY return of 52% and a 6M return of 33%.
Another idea is to pile onto the cement stocks which are still available at reasonable valuations. Daljeet Kohli & Prashant Jain have recently put a buy on Prism Cement. Rakesh Jhunjhunwala bought Orient Cement and Parag Parikh’s PPFAS Mutual Fund bought The Ramco Cement.
Yet another way of approaching the issue is to adopt the ancillary or derivative route of buying stocks that will indirectly benefit from a boost in infrastructure. Shriram Transport (which is backed by genius billionaire investor Ajay Piramal & David Nadel of Royce Funds), which finances purchases of new & used trucks, is a prime example of a quality stock with a deep moat, which is a great buy. Another example is Tata Motors and Ashok Leyland, which manufacture ‘Heavy Commercial Vehicles”. Tata Motors is a particularly good idea because it has a dominant presence in the passenger vehicle (consumer discretionary, economy and luxury segments) and also the HCV space. Rakesh Jhunjhunwala made it clear that Tata Motors was in his view the best cyclical/ infra stock to own.
One more idea is to tuck into the housing finance stocks like Repco Home Finance, Dewan Housing or Can Fin Home Finance. They will benefit immensely from housing projects.
Speaking for myself, I already have a chunk of Tata Motors DVR in my portfolio. I also have chunks of Repco & Dewan Housing. I also recently added a chunk of Prism Cement after I saw that Daljeet Kohli & Prashant Jain were aggressively backing it. I intend to load up more of each on every dip. So, I can say that I am quite prepared to welcome the infra boom, when it comes. What is your position?