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* SML (Sanghvi Movers Ltd.) is the largest crane rental company in India and Asia; and the fifth-largest in the world. At present, the company has a fleet of 389 medium to large sized heavy duty telescopic and crawler cranes ranging from 20 to 1000 MT. Out of 389, 247 cranes are of over 100MT capacity. SML also has a fleet of more than 95 High Bed Trailers and 64 multi-axle lines which are being used for the movement of its crane and crane parts from one location to another.

* Company’s fleet is primarily catered for the construction of various industrial plants like Power, Steel, Cement, Fertilizers, Petrochemicals & Refineries, Metros and Windmill sector; with Windmill sector contributing around 40% of the revenue.

* Revival of Wind Farm Capex: Wind farm sector has been struggling since FY18 when the government brought in competitive bidding process for wind farm power rate. Capacity addition dropped from 5 GW in FY17 to 1 GW in FY22. Now with the removal of the tariff ceiling as announced by MNRE, the recent SECI auction in May 22 drive good demand and witnessed tariff of Rs.2.92. According to Crisil, capacity addition is expected to double in FY23 and to be around 15 GW between FY24-27.

* Utilization reaching optimal level; room for yield to improve: In FY18, capacity utilization went down to 41%, but has now gradually bounced back to 82% in H1FY23. Yield too has improved from 1.3% in Q1FY21 (during covid) to 1.85% in H1FY23. Management has indicated that the yield can move up to 2.10-2.15% in FY24.

* Valuation: The share is trading at EV/EBITDA of 4.6x and PE of 10.2x FY24E. Considering the industry tailwind, revival of capex cycle, high earning growth visibility, strong balance sheet and strong cash flow generation we few stock is undervalued and should command higher valuation. We value the share at 16x PE and arrive at target price of Rs. 483.

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