Sanghvi Movers Ltd Management Discussions

Global economy

The global economy has demonstrated remarkable resilience, maintained steady growth, and showcased strength and adaptability. The Global growth rate stood at 3.3% in 2023 per IMFs projections. Even though the Russian-Ukraine war led to a global energy and food crisis, supply-chain disruptions are easing, showing resistance. A globally synchronised tightening of monetary policy played a crucial role, and eventually, the inflation eased off gradually. Current projections indicate that growth will remain steady at around 3.2% for 2024. Median headline inflation will likely decrease from 2.8% at the end of 2024 to 2.4% by 2025. The resilience in growth and faster disinflation can be attributed to favourable supply developments, including the diminishing impact of earlier energy price shocks and a notable rebound in labour supply, supported by sound immigration flows in many advanced economies. Decisive monetary policy actions and improved monetary policy frameworks, particularly in emerging markets, have been instrumental in anchoring inflation expectations. (Source: IMF)

Indian economy

During FY 2023-24, the Indian economy grew at 8.2%. This expansion was fuelled by optimistic signs in various industries, indicating resilience and confidence backed by good quantitative evidence. Consumer confidence increased, as evidenced by the RBIs household survey, suggesting increased optimism among households. Enterprises also reported good business circumstances, including increased production levels, greater capacity utilisation, and a better job outlook. Economic activity was vigorous during the fiscal year. Fligh-frequency indicators, such as e-way bills, toll collections, and vehicle sales, constantly showed strong demand. The labour market witnessed outstanding improvement, with the unemployment rate falling to 7.6% by March 2024. The organised sector saw increased job creation, as demonstrated by the purchasing managers index (PMI) for manufacturing and services, expanding employment prospects. A significant 11.1% rise in the capital investment budget for 2024- 25 increased the total to Rs. 11,11,111 Crores, or 3.4% of GDP. The Reserve Bank has maintained its GDP growth prediction of 7.2% for FY 2024-25. Looking ahead, India has a high potential to become the worlds third-largest economy by 2030, driven by strong domestic consumption, clear structural demand, and improved corporate and banking sectors. Infrastructure financing is crucial for economic growth and social welfare, traditionally dominated by state intervention in India due to market failures, high-risk perceptions, substantial sunk costs, better trade policy, significant infrastructure investments, and continued digitisation initiatives. With broad-based strategic changes, India is well-positioned for long-term economic growth. (Source: RBI)

Construction equipment sector

Indias construction equipment industry saw a 26% increase in sales to 1,35,650 units in FY 2023-24, driven by the governments infrastructure-led growth agenda, as reported by the Indian Construction Equipment Manufacturers Association (ICEMA). In the previous fiscal year, sales totalled 1,07,779 units. Positive developments in all five major construction equipment segments boosted this growth. Specifically, sales of earthmoving equipment, the largest segment in the industry, rose to 93,531 units in FY 2023-24, marking a 21% increase from 77,164 units in FY 2022-23 and accounting for about 70% of total construction equipment sales in FY 2023-24.

Construction sector

India consistently attracted foreign investment, receiving a total FDI inflow of USD 70.9 billion in FY 2023-24. The highest monthly inflows were in October 2023 at USD 6 billion and January 2024 at USD 5.9 billion. FDI equity inflows for the fiscal year amounted to USD 44.4 billion, with a notable 33% YoY growth to USD 12 billion in the January to March 2024 quarter. The construction, development, and power sectors saw FDI inflows more than double during this period. From April 2000 to March 2024, the cumulative FDI inflow into India totalled USD 990 billion, with Mauritius contributing the largest share at 25%, followed by Singapore at 24%. Maharashtra was the top beneficiary of FDI in FY 2023-24, receiving 30%, followed by Karnataka (22%), Gujarat (17%), Delhi (14%), and Tamil Nadu (5%). FDI plays a crucial role in Indias economic growth, providing significant non-debt finance for development.

Infrastructure sector

Indias aim to become a USD 26 trillion economy by 2047 is directly related to its ambitious infrastructure development plans. The Indian Government has maintained that infrastructure is critical to economic growth and effective governance. The latest efforts and strategic investments demonstrate Indias commitment to developing world-class infrastructure, serving numerous industries, and moving the country towards its economic goals.

PM Gati Shakti - National Master Plan for Multi-modal ConnectivityThe PM Gati Shakti - National Master Plan for Multimodal Connectivity, funded with USD 1.3 trillion, aims to reform and improve efficiency in Indias infrastructure sector. It plans to connect different modes of transportation and logistics to make freight movement smoother and cheaper.

National Infrastructure Pipeline (NIP)

The National Infrastructure Pipeline (NIP), alongside initiatives such as Make in India and the Production Linked Incentive (PLI) scheme, aims to enhance infrastructure development greatly. Historically, over 80% of Indias infrastructure spending has focused on transportation, electricity, and water, highlighting their importance.

Smart Cities Mission and Pradhan Mantri Awas Yojana Infrastructural improvements have resulted in substantial advancements in these programmes. The Pradhan Mantri Awas Yojana programme addresses the housing crisis and provides all residents with affordable housing options, while the Smart Cities Mission develops metropolitan areas with contemporary facilities and technologies.

Power sector

Indias energy consumption, which correlates directly with GDP growth, increased by 7.4% in FY2023-24 to 1,626 billion units (BU), the Central Electricity Authority (CEA) reported. During this time, there was a notable 13% increase in peak power consumption, reaching a record high of 243 gigawatts (GW). September 2023 saw an unexpected peak outside of the traditional summer peak season. Hydroelectric electricity production decreased by 17% annually due to the unpredictable monsoon rains, increasing the dependency on thermal power generation.

The Indian Government required domestic coal-based power plants to mix 6% imported coal to guarantee energy security. Furthermore, imported coal-based power plants had to run at full capacity between September 2023 and June 2024 and again in mid-October 2024. Several state governments have declared their intention to increase the capacity for producing thermal power in response to a rising need for electricity.

Renewable energy sector

India is ranked third in EYs Renewable Energy Country Attractiveness Index, demonstrating robust renewable energy market conditions, inclusive policy initiatives, and advances in investment and technology targeted at developing self-sufficient supply chains. Despite these achievements, overcoming obstacles will be critical to maintaining high sectoral growth. Integrating more variable energy sources puts pressure on grid infrastructure, demanding significant investment in energy transmission network upgrades and expansions. India has demonstrated remarkable resilience in the face of global challenges, with energy consumption hitting a record high of 243 GW in 2023 and rising by more than 5% per year over the previous decade. Economic growth and digitalisation will likely drive up industrial, commercial, and residential demand. As of 31 March 2024, Indias installed power generation capacity is 442 GW, with non-fossil fuels accounting for 45% or 199 GW.

In FY 2023-24, renewable energy accounted for 71% of all capacity expansions. Energy security and sustainable development hinge on achieving the 500 GW non-fossil fuel capacity target by 2030, prompting the government to invite bids for 50 GW of renewable energy annually until FY 2027-28. Governmental initiatives accelerating renewable capacity growth include financial assistance programmes, competitive bidding procedures, and open access to green energy. Reforms such as the revised Electricity (Amendment) Rules, 2022 have improved state DISCOM financial flows and decreased delayed payments to renewable energy providers. Furthermore, suggestions for differential time-of-day rates seek to transfer some night-time power demand to the daytime to optimise energy usage. The share of coal in Indias total installed capacity fell below 50% for the first time. India saw significant growth in renewable energy sectors in FY 2023-24. Wind power capacity additions rose to 3.3 GW from 2.3 GW in FY 2022-23. Moreover, for the first time since FY 2016-17, India added 1.4 GW of nuclear power capacity. Reflecting Indias ambitious renewable energy goals, auctions for renewable energy projects reached a record high in FY 2023-24, with approximately 41 GW of capacity auctioned.

Oil and gas sector

India maintained its position as the worlds third-largest energy consumer as of 2023. In April 2024, the country produced 2.42 million metric tonnes (MMT) of crude oil, with 73% of this production handled by public sector undertaking (PSU) companies. Assam, Gujarat, and Rajasthan collectively accounted for over 96% of Indias domestic oil production.

India is the worlds third-largest energy consumer as of 2023

(Source: Press Information Bureau)

Indias strategic petroleum reserves (SPR) capacity stands at approximately 5.33 MMT, ensuring stability in supply. In April 2024, exports of petroleum, oils, and lubricants (POL) products saw a notable increase of 9.6% compared to the previous year.

Increase in Indias capacity of strategic petroleum reserves from 2022

(Source: Ministry of Petroleum and Gas)

From April 2023 to March 2024, Indias crude oil production totalled 29.4 MMT, supporting domestic consumption needs. Petroleum product consumption in India reached 233.3 MMT during the fiscal year, driven by economic activities and growing energy demands.

Total petroleum product consumption in India in FY 2023-24

Indias oil consumption is forecasted to rise significantly, projected to increase from 4.8 million barrels per day (MBPD) in 2019 to 7.2 MBPD by 2030 and further to 9.2 MBPD by 2050, underscoring the countrys expanding energy needs and development aspirations.

Cement industry

The Indian cement industry, the second-largest producerglobally, is renowned for its energy efficiency, resource conservation, social responsibility, and environmental consciousness. The industry has long been committed to green, clean, and sustainable practices. In FY 2022-23, the Indian cement market achieved a significant size of 397 million tonnes per annum (MTPA), driven by substantial growth in the housing sector and continued investments in infrastructure development. The industry will likely grow impressively by 9-10% during FY 2023-24, reaching a total volume of 425-430 MTPA.

Indian cement industry (by volume) in FY 2023-24

(Source: Report of ICRA Limited)

As India gears up for rapid economic growth and urbanisation, the demand for quality infrastructure and modern living spaces is rising. The development of Tier-ll cities and rural areas drives the need for housing, transportation networks, healthcare facilities, and educational institutions. Additionally, the increase in commercial and industrial activities is boosting the demand for commercial spaces. With this positive outlook, the Indian cement sector anticipates an 8-9% increase in FY 2024-25 demand. The industry expects to add 150-160 MTPA in capacity over the next five years through organic and inorganic expansion strategies.

Steel industry

India is the second-largest producer of crude steel globally. In FY 2023-24, domestic crude steel production rose by 13.2% YoY to 144.04 MT, while finished steel consumption increased by 13.6% YoY to 136.25 MT. Robust domestic demand, supported by the governments continued infrastructure and housing investments, the rising share of manufacturing in GDP, and healthy demand from the automotive sector drove this growth. However, domestic steelmakers faced pressure on margins due to volatile commodity and energy costs, and a surge in low-cost imports further pressured steel prices.

During FY 2023-24, India became a net importer of steel as cheaper imports from Asia, particularly China, entered the domestic market. Overall, steel exports (finished and semifinished) increased by only 2.5% to 8.54 MT due to weak global demand, while steel imports jumped 37% YoY to 9.65 MT. Imports from China increased by 93% YoY to approximately 2.7 MT, while imports from ASEAN countries and Japan grew by 75% and 52% YoY to around 1.7 MT and 1.3 MT, respectively. The rising level of imports poses a significant risk to domestic steel prices and margins. Meanwhile, Europe emerged as the largest destination for Indian steel exports, accounting for 55% (approximately 4.7 MT) of the total.

Company overview

Sanghvi Movers Limited (SML) is India and Asias largest crane rental company and the fourth-largest globally, per International Cranes (June 2024). Established in 1989 and headquartered in Pune, the Company steadily grew its market presence and capabilities. The Companys shares are listed on the Bombay Stock Exchange and the National Stock Exchange. The Company is certified with ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018 standards, reflecting its commitment to quality, environmental management, and occupational health and safety. The Companys fleet comprises over 346 medium to large-sized heavy-duty telescopic and crawler cranes, with capacities ranging from 20 to 1,600 MT, operating across 130+ job sites nationwide. SML supports various industrial sectors, including power, steel, cement, fertilisers, petrochemicals and refineries, metro railways, and the wind power sector. Additionally, SML has over 100 high-bed trailers and 100 multi-axle lines for efficient equipment transportation.

SML maintains a pan-India presence with depots in over ten states, ensuring timely service delivery. Since its IPO in 1995, SML has strategically expanded its fleet. A notable milestone was the Companys collaboration with Reliance Industries Limited in FY 1997-98, involving a significant capex of over Rs. 50 Crores and deploying over 75 cranes. SMLs continuous investment in a world-class crane fleet, supported by a workforce of over 1,800 individuals and cutting-edge machinery, ensures it remains a leader in the crane rental industry.

With Indias focus on infrastructure development, including initiatives like Smart Cities and industrial expansions, there is a growing demand for heavy-lifting solutions provided by SML.

The increasing emphasis on renewable energy projects, such as wind farms, presents opportunities for SML to expand its crane services in this sector.

• Urbanisation and industrialisation:

As urban centres expand and industrial activities grow, there is a consistent need to construct new facilities and infrastructure, which drives demand for crane rental services.

Integration of advanced technologies in crane operations, such as digital monitoring and automation, can enhance efficiency and safety, positioning SML as a leader in modern crane solutions.

• Global expansion:

Leveraging its widespread domestic market presence, SML can explore opportunities for international expansion, particularly in regions undergoing rapid infrastructure development.

• Economic uncertainty:

Fluctuations in economic conditions, currency exchange rates, and regulatory changes can impact overall infrastructure spending, potentially affecting demand for crane rental services.

• Intense competition:

The crane rental industry is competitive, with several global and domestic players vying for market share. Intensified competition could pressure pricing and margins.

• Supply chain risks:

Dependencies on suppliers for crane parts and maintenance could expose SML to risks related to supply disruptions, which could affect service delivery and client satisfaction.

Risk and concerns

SML is aware of the dangers it encounters and understands the need to handle them to protect itself from any harmful effects adequately. As a result, the Company has established an extensive risk management structure that functions at various levels throughout the enterprise. The Board of Directors establishes the overall risk management plan and approves operating procedures. This approach guarantees that risk management is consistent with SMLs overarching goals and values. Then, the Risk Management Committee monitors the strategys execution and regularly assesses the degree of risk. By doing this, the Company can better detect new threats and ensure its risk management procedures are still applicable and efficient. By adhering to this framework, SML reduces earnings volatility and increases shareholder value. This proactive approach to risk management prepares the Company to face problems and capitalise on future possibilities.

• Economic risks: Economic risks are losses that occur as a result of macroeconomic causes. Economic concerns for SML include a downturn in the building business, inflation, and currency rate volatility. Failure to adequately manage these risks may result in decreasing demand, greater operational expenses, and financial losses for the Company. The Company reduces economic risk by servicing a diversified client base, implementing flexible pricing strategies, reducing expenses, investing in technology, and maintaining a solid financial position with minimal debt and sufficient cash reserves. These strategies help SML navigate economic downturns and capitalise on opportunities.

• Market risks: In the context of SML, market risk encompasses the potential for financial losses arising from shifts in market dynamics, such as alterations in demand for crane rental services, competition from other crane rental companies, and changes in equipment pricing. These factors can influence the Companys financial performance. To mitigate these risks, SML has adopted several strategies. These include diversifying its client base across industries and geographies, entering into long-term client contracts, and utilising financial hedging instruments. Additionally, the Company focuses on optimising operating costs and continuously monitoring market conditions to make well-informed decisions. These measures collectively contribute to managing and mitigating market risks effectively.

• Operational risks: SML operates in a high-risk environment where any error or mistake could lead to significant financial and reputational losses. The Company implements safety protocols, invests in equipment maintenance, and provides regular employee training to mitigate operational risks. Operational risks include safety hazards, equipment maintenance challenges, and employee training needs. The Company mitigates these risks through stringent safety protocols, diligent equipment maintenance practices, and ongoing employee training initiatives. Moreover, SML diversifies its client base across industries and regions, secures long-term contracts, and employs financial hedging strategies to safeguard against market volatility and optimise operational efficiency.

• Cybersecurity risks: SMLs digital assets and data are potentially vulnerable to cyber threats, including hacking, data breaches, and ransomware attacks. The Company has adopted robust security measures, such as firewalls, antivirus software, and data encryption, to mitigate these risks. Regular security inspections are conducted, and employees receive ongoing cybersecurity training to bolster the Companys defence against cyber threats.

• Financial risks: SMLs financial performance is closely tied to the demand for its services, making it susceptible to changes in economic conditions and industry dynamics. To manage these financial risks effectively, the Company diversifies its revenue sources, maintains adequate cash flow, and regularly evaluates its financial statements to assess potential risks and seize opportunities.

• Sustainability risks: Sustainability risks encompass the potential adverse effects of a companys operations on the environment and society and the impacts of climate change on SMLs activities. These risks may include heightened regulatory pressures to curb green house gas emissions, reputational harm from environmental or societal impacts, and physical risks such as equipment damage from extreme weather events. Companies are adopting sustainability strategies focused on reducing environmental and social impacts, such as cutting greenhouse gas emissions, enhancing energy efficiency, improving waste management, and implementing sustainable supply chain practices to mitigate these risks. Additionally, SML engages with stakeholders—including investors, customers, and local communities—to understand their concerns and expectations regarding sustainability, fostering relationships built on transparency and trust.

• Technology risks: SML depends significantly on technology to operate and manage its cranes. Any technology failure or disruption could adversely affect its business operations. To mitigate these risks, the Company invests in dependable and secure technology infrastructure, conducts regular data backups, and has a disaster recovery plan.

Human resources

Addressing manpower risks is crucial to our operations and growth. The industry demands a workforce with specialised expertise in operating and maintaining cranes, making recruitment and retention of suitable talent a significant challenge.

To tackle these challenges and mitigate the risks associated with manpower shortage and poaching, Sanghvi Movers has proactively implemented several initiatives:

• Leadership Development: We focus on identifying and nurturing potential leaders within the organisation. This investment in employee development ensures a pipeline of skilled operators and technical staff who can drive the companys success.

• Individual Development and Career Planning: Empowering employees with growth opportunities through structured career planning and skill development programmes is a priority. Continuous upgradation of skills across all experience levels ensures our workforce remains competent and adaptable to the latest industry knowledge and practices.

• Employee Engagement and Recognition: Implementing effective engagement and recognition frameworks at various levels promotes a positive work culture and motivates employees to perform at their best. By acknowledging and appreciating their efforts, we encourage loyalty and reduce the likelihood of losing experienced staff to competitors.

• People Rotation: Focusing on top talent, we practice strategic people rotation across different projects and locations. This approach leverages the strengths and skills of key employees, providing diverse opportunities and challenging assignments. It not only retains top talent but also ensures a continuous learning and development journey for our workforce.

Internal control systems and their adequacy

Internal control systems are the policies and procedures implemented by a company to ensure the accuracy, reliability, and completeness of its financial statements. SML has established a comprehensive system of internal controls tailored to its business size and nature. This system aims to efficiently use resources while safeguarding assets from unauthorised use or disposal. Measures are in place to accurately authorise, record, and report all transactions, ensuring the integrity of financial and operational data used in financial reporting and asset management. To strengthen its internal control framework, SML conducts extensive internal audits overseen by independent auditors who review operations and procedures. The management team regularly evaluates the system to identify areas for improvement. Documented policies, guidelines, and procedures ensure employees understand their responsibilities and adhere to expected standards of conduct. These policies promote the consistent application of SMLs internal control system across the organisation. The Company aims to maintain accurate and reliable financial statements, with its internal control system playing a crucial role in achieving this objective.

Cautionary statement

The management discussion and analysis section includes forward-looking statements concerning future prospects, which involve numerous identified and unidentified risks and uncertainties that could significantly differ from actual results. Additionally, changes in the macro-environment, such as global pandemics like COVID-19, present unforeseen, unprecedented, and constantly evolving risks to the Company and its operating environment. The assumptions underlying these statements rely on available internal and external information and serve as the basis for determining certain facts and figures in the report. As these assumptions are subject to change overtime, the estimates upon which they are based may also change accordingly. These forward-looking statements reflect the Companys current intentions, beliefs, or expectations, and each statement speaks only as of the date it was made. The Company does not undertake to revise or update any forward-looking statements, whether due to new information, future events, or otherwise.

Report on Corporate Governance

A report on compliance with corporate governance principles as prescribed under Regulation 17 to 27 read with Schedule V of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as listing regulations) and practices followed on Corporate Governance, the report containing the details of Corporate Governance system and process at Sanghvi Movers Limited is as under: