Rationale

 The rating action factors in Sanghvi Movers Limited’s (SML) established position as the largest crane rental operator in Asia1 and its reputed client base, reflected in steady order inflow over the years. The ratings consider its comfortable financial position with low leverage (TOL/TNW of 0.4 times as of March 2024) and healthy coverage metrics (DSCR of over 3.0 times). ICRA takes note of the improvement in coverage metrics and return metrics (RoCE of ~23% in FY2024) on the back of improved capacity utilisation and rental yields, which increased to 84% (83% in FY2023) and 2.20% (1.97% in FY2023), respectively, translating to 36% YoY growth in FY2024 revenues to Rs. 618.5 crore. The revenues are expected to improve in FY2025, led by a strong order book position (Rs. 426 crore as of April 2024) and likely sustenance of demand in wind energy (key end-user segment) and other core infrastructure sectors (e.g., cement, steel, etc). ICRA takes note of the diverse fleet of cranes and good supporting infrastructure (consisting of a wide network of depots), which aids its operations across various end-user industries in multiple states in India. ICRA, however, notes the sizeable debt-funded capex planned by the management in FY2025. While the same may lead to moderation in coverage indicators, the DSCR is expected to remain comfortable in the medium term. Over the medium term, the company has organic/inorganic plans to support its revenue growth, which will be funded by a mix of internal accruals, surplus liquidity and incremental borrowings, if any. However, the impact of any such investments on the credit profile would be evaluated by ICRA on a case-by-case basis. This, coupled with the routine business capex, would result in increase in debt levels in the coming year. While SML has been diversifying its end-user industry over the past few years, its operations remain exposed to the cyclicality in the investment activities of the end-user industries, especially the wind sector, which contributed to around 52% of the company’s revenues in FY2024 (FY2023: 45%). The wind segment’s share is likely to rise further in FY2025, which accentuates the segment concentration risk. The rating factors in the expected moderation in the operating margins in the medium term on account of increased revenue share from the low margin engineering, procurement and construction (EPC) business in the wind sector. ICRA notes that for the contingent liabilities of ~Rs. 871 crore outstanding as on March 31, 2023, towards VAT/CST dues, SML has received a favourable ruling for FY2008-09 amounting to Rs. 120.3 crore by the Bombay High Court. While the cases for other years are still pending, the risk of materialisation of the contingent liabilities is mitigated to a large extent, and hence the same is not classified as contingent liability by the statutory auditor in the annual report of FY2024. That said, ICRA will continue to monitor the development in this matter. The Stable outlook reflects that SML will witness sustained growth in operating income, supported by the favourable demand outlook in its key end-user industries. Further, the outlook underlines ICRA’s expectation of sustenance of comfortable capital structure and coverage metrics.