We are topping up Sanghvi Movers i.e. restoring allocation back to 3% (at the time of initiation) which fell to 2% along with the price. Further, we are increasing the suggested allocation to 4%. So if your current allocation is 2% (in-line with model portfolio) you should add 2% to make it 4%. However, if your current allocation is already 3%, you just need to add 1%.

Rationale
The turnaround is clearly delayed due to execution challenges in wind energy like the stoppage of land allotment by Gujarat and lack of evacuation/transmission infrastructure. However, despite this being the worst down cycle in the company's history, we find it encouraging that the cash flow generation continues to be healthy and SML is not only repaying principal due but also pre-paying to ensure accelerated deleveraging of the balance sheet.

Wind has a strong pipeline of 10 GW but some of it will be re-auctioned due to issues with Suzlon and Inox. Seimens-Gamesa and other MNC players are filling the void which should ensure H2FY20 onwards the wind installations pick up steam and FY21 should see 3+ GW of execution. SML has completely stopped doing business with Suzlon/Inox and all the over-dues have been fully provided for, based on NCLT outcome some of it could also be recovered in due course of time. It enjoys 60-70% wallet share with all leading WTG & EPC MNCs operating in India - Siemens-Gamesa, Vestas, GE, Envision etc.

We also see a healthy capex pipeline in refineries & infrastructure which shall aid demand revival for cranes, SML is one of the leading crane suppliers to L&T.

On the supply side, industry is seeng consolidation as leveraged players unable to meet their financial obligations amidst on-going slowdown are slowly going bust. A case in point is Starlog (ABG Infralogistics) which had a fleet of 180 cranes but is now into NCLT. During last year, SML's utilisation has improved from under 50% to 70+% and is on the way to reach 80% by next year. The yields have bottomed out at ~1.7% and shall follow the improvement in utilisation.

Most of the forced selling by Small Cap Mutual Funds due to redemption seems to have been absorbed, including by Promoter who bought shares worth ~ Rs 1 Cr from the open market.The current enterprise value is Rs 700 Cr which is half the replacement value of cranes alone at Rs 1,500 Cr, besides prime real estate in Pune. Worst case with no improvement in utilisation or yield, in two years the debt will be down to Rs 100 Cr and at this EV the market cap would almost double from the current level. Of course we expect utilisation to hit 80% and yields to at least recover to 2.25% which should restore reported earnings, making it attractive not only on asset value but also based on earning power.