Sanghvi Movers Saudi unit stays positive as costs curb margin

Sanghvi Movers Limited said its Saudi Arabia business was EBITDA-positive in the first half of FY27, but an analyst-cited 24% EBITDA margin still reflected six to eight months of establishment costs incurred before revenue, despite management reporting 86% utilisation and a 3.8% monthly rental yield for the operation.

Is Sanghvi Movers’ Saudi business already profitable?

Yes, Sanghvi Movers said its Saudi Arabia business is EBITDA-positive and generated a cash profit in the quarter discussed on the call. EBITDA, or earnings before interest, tax, depreciation and amortisation, measures operating profit before financing, tax and non-cash depreciation charges. Management said the business had moved beyond break-even despite constraints on further crane deployment.

The regional operation remains a small part of Sanghvi Movers’ current business. An analyst cited a Middle East order book of Rs 45 crore, against Sanghvi Movers’ total FY27 order book of Rs 1,582 crore, while regional gross block stood at about Rs 148 crore compared with group gross block of about Rs 3,400 crore. Management described the exposure as less than 5% of the overall business.

Management cited 86% utilisation, a 3.8% yield and days sales outstanding, or DSO, of 165 days for Saudi Arabia in its first-half discussion. DSO, the average time taken to collect revenue after billing, had declined from 201 days. Management said a collection period of 150 to 170 days was standard in the region.

Why is Sanghvi Movers’ Saudi EBITDA margin at 24%?

Sanghvi Movers said start-up costs are the main reason the Saudi margin remains below a mature operating level. Responding to an analyst who cited a 24% first-half EBITDA margin, management said the company incurred costs for the first six to eight months while it was not earning revenue and that commercial operations began only afterward.

Management referred to a 23% EBITDA margin in its direct response, while the analyst’s question used 24%, leaving a one-percentage-point difference in the call transcript. Both figures were linked to the same explanation: costs incurred to establish the Saudi operation before its commercial ramp-up are still being absorbed in reported profitability.

Management said the industry EBITDA-margin range was 40% to 45% and expects its Saudi margin to normalise over time. It attributed the potential improvement to fuller deployment, a larger revenue base and fixed-cost absorption, adding that its operating experience and cost base could raise margin by one or two percentage points when the business is at scale. This was management’s expectation, not FY27 margin guidance.

The operation’s yield also declined from the 4% cited for the first quarter to 3.8% more recently. Management said overtime usage was lower in the second quarter because supply-chain disruption delayed manpower and material reaching project sites, reducing crane work outside normal hours.

What is delaying Sanghvi Movers’ Saudi expansion?

Shipping disruption and elevated logistics costs are delaying Sanghvi Movers’ planned Saudi expansion. Management said it had postponed Rs 80 crore to Rs 90 crore of Saudi capital expenditure, or capex, to the next financial year while waiting for shipping costs to normalise before mobilising larger cranes.

Management said the disruption was not solely a result of conflict in West Asia, but that conflict had prolonged pressure on logistics and shipping chains. It said projects in the Gulf Cooperation Council region were being delayed by one to two quarters, primarily because of logistics constraints and shortages of manpower and materials at project sites.

The call contained differing first-half utilisation figures. In one response, management said first-quarter utilisation was 86% and first-half utilisation was 78%, which it linked to a monsoon-related slowdown. In a later Saudi-specific answer, it said first-half utilisation was 86%; the transcript does not reconcile the two first-half measures.

Management said every crane imported into Saudi Arabia or Qatar during the financial year had moved from port to site. It also said it moved a 600-tonne crane from India to Saudi Arabia during the peak of the conflict, and noted that cranes are mobile assets that can be relocated if conditions require.

How does Saudi Arabia affect Sanghvi Movers’ FY27 plan?

Saudi Arabia does not currently determine Sanghvi Movers’ group FY27 plan because the cited regional order book of Rs 45 crore is small against the Rs 1,582 crore total FY27 order book. Sanghvi Movers reaffirmed FY27 guidance of Rs 1,400 crore to Rs 1,500 crore in total income and Rs 525 crore to Rs 575 crore in EBITDA after the first half.

Management expects 8% to 10% of the Rs 1,582 crore FY27 order book, or Rs 140 crore to Rs 160 crore, to spill into the next year. It linked that risk principally to the engineering and construction business, including grid connectivity, power-purchase-agreement offtake, site availability, wind-turbine-generator supply and monsoon delays.

Sanghvi Movers’ total FY27 capex plan is Rs 583 crore, of which Rs 182 crore had been capitalised in the first half after Rs 90 crore in the second quarter. Management said roughly Rs 400 crore remained to be spent, generally in the third and fourth quarters after the monsoon, and projected a FY27 debt-to-equity ratio of around 0.7 to 0.75.

The Saudi start-up margin should be separated from the group crane division’s accounting effects. Management said the overall crane-business EBITDA margin was 46%, while an impaired asset resulted in a Rs 9 crore operating-expense write-off and an insurance claim reported under other income. It attributed the Saudi margin specifically to establishment costs and the operation’s incomplete scale-up.

Conclusion

Sanghvi Movers’ Saudi business has reached positive EBITDA and quarterly cash profit, supported by reported 86% utilisation and a 3.8% yield. Its analyst-cited 24% first-half margin, however, has not yet reflected a fully scaled operation because pre-revenue establishment spending from the first six to eight months remains in the earnings base.

The next disclosed trigger is deployment of the Rs 80 crore to Rs 90 crore of Saudi capex deferred to the next financial year, which management has tied to normalisation in shipping costs. Management also expects Saudi margins to improve at fuller scale and has reaffirmed FY27 group EBITDA guidance of Rs 525 crore to Rs 575 crore despite potential order-book spillover of Rs 140 crore to Rs 160 crore.