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Sadbhav Engineering Ltd Research Report - 21st Jan 2016

Infrastructure | Published on Nov 10th 2015


Sadbhav Engineering (SEL) reported a strong set of numbers for 2QFY2016. On the top-line front, SEL reported a strong 25.4% yoy growth to Rs746cr in 2QFY2016. This was mainly on account of execution of in-house BOT projects (mainly Rohtak-Hissar project, which contributed ~Rs190cr) and lower base of the corresponding period of last year. The company posted an EBITDA margin of 10.8%, up 80bp yoy. Interest cost declined by 20.4% yoy to Rs18cr. On the bottom-line front, the company’s reported PAT grew 158.4% yoy to Rs26cr. On adjusting for an exceptional item, the Adj. PAT grew 274.7% yoy to Rs38cr. SEL reported order inflow of Rs1,608cr during the quarter, taking the total inflows won during 1HFY2016 to Rs2,684cr. SEL is sitting on an order book of Rs9,306cr (Order Book to LTM ratio at 2.9x) as of 2QFY2016, which provides good revenue visibility. Outlook and valuation: Considering recent order wins and strong 1HFY2016 execution, we model revenue estimates of Rs3,481cr/Rs4,219cr for FY2016E/ FY2017E, respectively. Given the low competitive intensity for recently won Road EPC projects, cool-down in bitumen and aggregate prices (as captive BOT projects have fixed price contracts), we expect EBITDA margins to expand by 53bp during FY2015-17E to 10.8%. Further, we model conservative other income numbers and low tax rate for FY2016/2017E at Rs13/14cr and 24%, respectively. Accordingly, we expect SEL’s PAT margin to expand by 109bp during FY2015-17E to 5.1%. We value SEL using Sum-Of-The-Parts methodology. We value standalone entity on P/E multiple of 15.0x its FY2017E EPS of Rs12.4cr, resulting in value of `187 per share. We value BOT projects individually using Free Cash flow to Equity holder’s method. Our value for SIPL’s portfolio of BOT projects comes to Rs141/share, which is 43% of the overall SOTP value for the company. On combining the value of EPC business and BOT projects, we arrive at a combined business value of Rs328/share, reflecting limited upside in the stock price from current levels. Accordingly, we maintain Neutral rating on the stock.

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CMP 312
Target Price
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others3.0
Grand Total100.0

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