Apr 10, 2024
The infrastructure cycle is creating multiple opportunities to play the capex boom in India.
With massive investments pouring into infrastructure projects, ancillary sectors such as steel and cement are also experiencing a surge in demand.
In this list of ancillaries, one sector that often goes un-noticed is the crane industry.
As construction and development projects scale up, the demand for cranes – the unsung heroes of heavy lifting and material handling – is set to soar.
Cranes play a crucial role in the construction of high-rise buildings, bridges, airports, and other key infrastructure projects. Their importance cannot be understated, as they ensure efficiency, safety, and speed in construction activities.
In today’s article, we’ll look at the top 5 companies that are involved in this space.
The first on the list is Action Construction Equipment.
Action Construction manufactures hydraulic mobile cranes, mobile tower cranes, material handling, road construction, and agriculture equipment.
It is the world’s largest Pick & Carry crane manufacturer, with operations across India and over 37 countries. Action Construction is also one of the top 3 players in the forklift segment.
In the quarter ended December 2023, the company achieved its best-ever quarterly revenue, reaching Rs 7.5 billion (bn).
The company has been experiencing growth momentum across all its segments. Notably, the crane segment experienced a 43% YoY growth.
Moving forward, supported by the country’s infrastructure project growth, Action Construction expects 30% growth in the crane segment and 50% in the construction segment. The company also expects at least a 20% growth in metal handling and agri segments in FY24.
The company already has a market share of 63% in the mobile cranes segment and it’s investing in a brand-new manufacturing facility for higher-capacity cranes.
The company recently secured 80 acres of land for future growth to push its revenue to Rs 50 bn by FY27.
The company also has a strong pipeline with versatile machines like telehandlers, rough terrain cranes, and reach stackers to support its growth.
Action Construction has won a lucrative 1,800 rough terrain forklifts order from the Indian Army that could help the company reach revenue target of Rs 44 bn by FY26. This means that the company could potentially double its revenue in two years.
| Rs m, consolidated | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Sales | 13,425 | 11,562 | 12,272 | 16,296 | 21,597 |
| Growth (%) | 24% | -14% | 6% | 33% | 33% |
| Operating Profit | 1,075 | 957 | 1,343 | 1,622 | 2,620 |
| OPM (%) | 8% | 8% | 11% | 10% | 12% |
| Net Profit | 560 | 525 | 798 | 1,050 | 1,716 |
| Net Margin (%) | 4% | 5% | 7% | 6% | 8% |
| ROE (%) | 13.7 | 11.9 | 16.5 | 16.4 | 20.7 |
| ROCE (%) | 20.1 | 16.3 | 21.8 | 21.6 | 28.6 |
| Dividend (Rs) | 0.5 | 0.5 | 0.5 | 0.6 | 1.0 |
| Debt to Equity (x) | 0.1 | 0.2 | 0.1 | 0.0 | 0.0 |
Going forward, the company plans to introduce new products like aerial work platforms, telehandler, and rough terrain cranes to its portfolio of offerings.
Next on the list is Sanghvi Movers.
Sanghvi Movers provides hydraulic and crawler cranes to various industries in the infrastructure sector.
The company has a fleet of 387 cranes with large-sized and medium hydraulic trucks, mounted telescopic and lattice boom cranes, and crawler cranes. These huge machines have a lifting capacity of 20 tonnes to 800 tonnes.
Sanghvi Movers is India’s largest crane hiring company, importing top-notch cranes from countries like USA, UK, Germany, Japan, and Singapore. It also performs heavy lifting, plant maintenance, and lift planning jobs.
It is a leading player with over 45% domestic crane rental market share.
In the most recent quarter, Sanghvi Movers completed a strategic capex of Rs 4.1 bn for a brand new fleet of cranes, prime movers, and trailers.
Now, cranes are critical for infrastructure theme to play out across industries such as wind energy, power sector, refineries, fertilizers, oil n gas, steel, metal, cement, metro, and EPC projects.
Sanghvi caters to all of these, with revenue from wind sector accounting for the biggest share of 48%.
The stock has indeed gained on positive news flow. But there is more to it.
The company is in a good place to make the most of it with its lean balance sheet, and surplus cash to capitalise on growth opportunities.
Sanghvi’s debt to equity ratio is 0.34 times which is comfortable and the return on capital employed for FY23 was at 15.2%.
| Rs m, consolidated | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Sales | 2,823.97 | 3,228.70 | 2,237.36 | 3,352.60 | 4,557.83 |
| Growth (%) | 24% | 14% | -31% | 50% | 36% |
| Operating Profit | 1,022 | 1,601 | 1,164 | 1,749 | 2,866 |
| OPM (%) | 36% | 50% | 52% | 52% | 63% |
| Net Profit | -581 | -66 | -224 | 294 | 1,120 |
| Net Margin (%) | -21% | -2% | -10% | 9% | 25% |
| ROE (%) | -7.6 | -0.9 | -3.1 | 4.1 | 14.2 |
| ROCE (%) | -3.1 | 1.8 | -0.6 | 6.3 | 17.2 |
| Dividend (Rs) | 0.0 | 0.0 | 0.0 | 1.0 | 4.0 |
| Debt to Equity (x) | 0.6 | 0.4 | 0.3 | 0.2 | 0.2 |
Prior to the infra pickup in 2023, shares of Sanghvi Movers were in a down cycle.
In the earlier capex cycles, the company resorted to huge debt funded capex of up to Rs 7-8 bn in FY 16-17, for the wind energy sector.
Then the downturn in the economy, especially in wind sector due regulatory changes, from bidding tariffs to reverse auctions, led to a cut down in wind power installations.
With that policy scrapped now, installations have picked momentum. More importantly, the company has diversified its business significantly beyond the wind sector.
Next on the list is Crown Lifters.
Crown Lifters is a supplier of construction equipment for industrial sectors.
The company has a large and young fleet consisting of crawler lattice booms, crawler telescopic booms, all-terrain cranes, rough terrain cranes, piling rigs and aerial platforms.
As per its latest investor presentation filed in March 2024, the company has capex plans worth Rs 300 million (m) between FY24 and FY25. The company plans to invest in new equipment for long-term projects.
Apart from that, the company has several initiatives lined up that could support its growth in the future. Some of these include:
Coming to its financials, the company recently posted good quarterly numbers with the December 2023 quarterly net profit coming in at Rs 14 million (m) compared to Rs 3.4 m in the year ago period.
| Rs m, consolidated | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Sales | 181 | 144 | 122 | 199 | 193 |
| Growth (%) | 21% | -21% | -15% | 64% | -3% |
| Operating Profit | 86 | 66 | 57 | 56 | 51 |
| OPM (%) | 47% | 46% | 46% | 28% | 26% |
| Net Profit | -27 | -35 | 26 | -16 | 39 |
| Net Margin (%) | -15% | -24% | 21% | -8% | 20% |
| ROE (%) | -12.5 | -19.3 | 14.6 | -8.8 | 20.2 |
| ROCE (%) | 1.8 | -0.2 | 12.1 | 23.0 | 12.9 |
| Dividend (Rs) | 0.0 | 0.0 | 0.0 | 0.0 | 0.2 |
| Debt to Equity (x) | 1.9 | 2.1 | 0.8 | 0.0 | 0.6 |
Next on the list is TIL.
TIL is involved in material handling, lifting, and construction industries. From material handling to innovative port and road construction solutions, TIL provides multiple services.
The company has two factories in Eastern India. Its Kamarhatty mobile crane manufacturing facility was the first of its kind in the country.
Despite cash inflow challenges, production, and delivery impediments, TIL is one of the customers’ preferred choices, mainly because of its customer support and after-sales service.
Indocrest Defence Solutions, a part of Gainwell Group, became a strategic investor in TIL to provide substantial opportunities for its revival.
Gainwell Group plans to invest Rs 1.2 bn over the next two years to launch new generational products and refresh existing offerings.
India’s Sagarmala project, Maritime Vision 2030, plays a key role in developing port infrastructure that could help the company to capitalise.
The company is also expanding its footprint in the defence sector.
| Rs m, consolidated | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Sales | 4,390 | 3,770 | 3,132 | 662 | 438 |
| Growth (%) | 28% | -14% | -17% | -79% | -34% |
| Operating Profit | 599 | 132 | -238 | -1,111 | -483 |
| OPM (%) | 14% | 3% | -8% | – | – |
| Net Profit | 232 | -185 | -686 | -4,317 | -918 |
| Net Margin (%) | 5% | -5% | -22% | – | – |
| ROE (%) | 7.5 | -6.0 | -25.9 | – | 0.0 |
| ROCE (%) | 9.7 | 0.0 | -5.6 | – | -37.5 |
| Dividend (Rs) | 1.8 | 0.0 | 0.0 | 0.0 | 0.0 |
| Debt to Equity (x) | 0.6 | 1.0 | 1.6 | -2.0 | -1.4 |
Last on the list is Hercules Hoists.
It’s a company that manages overall material handling needs. It can move tons of materials, from heavy-duty mechanical hoists to versatile electric chain hoists and space-saving storage solutions.
It has two state-of-the-art facilities in Khalapur and Chakan.
Being a part of the Bajaj group, the company has brand recognition, stability and resources to soar to new heights in the infrastructure space. The company is focused on the material handling sector, as it generated Rs 1.5 bn in revenue in FY23.
The company recently sold its land in Mulund, Mumbai, for Rs 1 bn, which freed up capital for future investments. This strategic move also resulted in Rs 870 m in profit.
The company has plans to reinvest it in its core competency to become a leader in material handling.
Hercules Hoists also sold its windmills for a loss. However, it was part of an overall strategy to concentrate on their core business expertise.
The company is also proactively executing a demerger with Indef Manufacturing Limited (IML) to separate the company from its manufacturing business.
It allows each entity to operate with greater focus and agility. Post the demerger, shareholders will have a clear advantage with a 1:10 ratio to their holdings in Hercules Hoists.
As the focus is shifting towards making the country a manufacturing hub, Hercules Hoists is poised to capitalise with support from Make in India and PLI schemes.
Even with inflationary pressures, the company can continue robust and consistent operations due to the increased demand for material handling.
| Rs m, consolidated | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Sales | 1,022 | 830 | 784 | 1,084 | 1,508 |
| Growth (%) | 35% | -19% | -6% | 38% | 39% |
| Operating Profit | 191 | 195 | 125 | 229 | 344 |
| OPM (%) | 19% | 24% | 16% | 21% | 23% |
| Net Profit | 128 | 130 | 78 | 149 | 1,033 |
| Net Margin (%) | 13% | 16% | 10% | 14% | 69% |
| ROE (%) | 3.2 | 3.4 | 1.9 | 2.7 | 15.6 |
| ROCE (%) | 4.0 | 4.2 | 2.3 | 3.3 | 17.6 |
| Dividend (Rs) | 1.5 | 1.8 | 1.5 | 2.6 | 3.0 |
| Debt to Equity (x) | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
India’s ambitious plans to ascend to a developed nation status by 2047 hinges on a critical factor – transforming its infrastructure.
The substantial allocation of 3.3% of GDP to the infrastructure sector in FY24 proves the country’s commitment.
The India Investment Grid (IIG) database also paints a promising picture, revealing 15,580 projects with a combined wealth of US$ 2,388.9 bn at different stages of development.
By 2030, 40% of India’s population will move to urban areas, playing a pivotal role in driving GDP. Rapid urbanisation is the need of the hour, and top infrastructure companies play a crucial part in the mission of smart cities.
As India strides towards an infrastructural renaissance, the crane industry is set to play a pivotal role in shaping the skyline of the nation.
It’s pretty incredible to see how far this industry has come. We still have a lot of work to do though.
Continued government commitment, private sector participation, and technological adoption are crucial for overcoming challenges and building a robust, efficient, and sustainable infra network.
If you do take on crane stocks in your portfolio, exhaustively study their financials, the scope of their projects, and their overall market positioning.
That’s it for today, happy investing!
Lithium is the new oil. It is the key component of electric batteries.
There is a huge demand for electric batteries coming from the EV industry, large data centres, telecom companies, railways, power grid companies, and many other places.
So, in the coming years and decades, we could possibly see a sharp rally in the stocks of electric battery making companies.
If you’re an investor, then you simply cannot ignore this opportunity.
Details of our SEBI Research Analyst registration are mentioned on our website – www.equitymaster.com
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
