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Strategic shifts in the business model to benefit going forward: The company is planning to foray into international markets

such as the Far East, the Middle East, and the Indian Subcontinent. Their focus area is also to include more value added services like providing customized solutions to bring down costs, reduce downtime & help them in timely completion of projects.

Strong & diversified order book across sectors:

The company started the fiscal with an order book of Rs.296 cr. As on September 30, 2021, SML had executed orders worth Rs.146 cr and the remaining orders worth Rs.150 cr are executable during the current fiscal. The order book is diversified into various sectors including windmill, power, oil & gas, steel, cement, etc.

Strong market share and wide range of fleet to benefit in the medium to long run:

SML has been ranked first in India and fifth in the world - with a fleet of 381 cranes ranging from 20 to 1,000 MT. Of these, more than 240 cranes are above 100 MT capacities which constitutes over 90% of the gross block. Further, SML commands a market share of over 40-45% in the overall domestic crane rental market and as high as 60-65% in the high-end crane of 400 MT & above.

Revival in infrastructure space to drive the growth going forward:

In the recent Union Budget, Finance Minister raised proposed capital expenditure by ~35% from Rs.5.5 lakh cr in FY22 to Rs.7.5 lakh cr for FY23.

Substantial debt-reduction program to improve profitability:

With the change in Management, there has also been a shift in the long-term strategies of the company. SML had always carried huge borrowings on it’s books, however, in the recent years the borrowings have substantially dropped from ~Rs.540 cr in FY18 to ~Rs.180 cr in FY22.

OUTLOOK & VALUATION

SML is the largest crane rental company in India and Asia, and the fifth-largest in the world with market share of over 40-45% in the overall domestic crane rental market & as high as 60-65% in the high-end crane of >400 MT. The company’s debts have substantially dropped from ~Rs.540 cr in FY18 to ~Rs.180 cr in FY22 and SML is targeting to be a debt-free company over the next 12-18 months. Further, the company is taking several strategic initiatives – SML is eyeing international markets; secondly, focus area is also widening to include more value added services like providing customized solutions to bring down costs, reduce machine downtime, and help them in timely completion of projects. With the Government’s focus on infrastructure as indicated in the recent budget, we believe, SML is a good proxy play to India’s capex and infrastructure story. We expect SML to deliver an EPS of Rs.16.0 in FY24; assigning a target multiple of 20x we arrive at a target price of Rs.320 showcasing an upside potential of ~39% from current levels with an investment horizon of 18-24 months.

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