IDFC Securities - Sadbhav Engineering (SADBHAV) Sadbhav Engineerings Q1FY19 results (Outperformer) - HAM projects: key growth driver from H2

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IDFC Securities

Sadbhav Engineering's Q1FY19 results (Outperformer) - HAM projects: key growth driver from H2

Q1FY19 result highlights

Sadbhav Engineering’s (SEL) earnings were ahead of estimate led by higher other income. PAT grew 14.3%yoy to Rs634m (est: Rs526m).
Revenue declined 3.5%yoy to Rs9.1bn (est: Rs9.2bn). EBITDA remained flat yoy to Rs1.1bn (in line) and EBITDA margin grew 40bp yoy to 11.7% (est: 11.4%) led by better revenue mix.
Other income (including interest income of Rs177m from SIPL) grew 76.3%yoy to Rs285m and was ahead of estimate of Rs175m. Higher other income was attributable to mining equipment/machinery leasing income, interest on advances to sub-contractors and interest on FDR.
Interest expense (gross) declined 2.3%yoy and 11.9%qoq to Rs434m (est: Rs450m) due to i) decrease in finance charges led by lower utilization of non-fund based limits (lower bidding intensity in Q1), and ii) reduced working capital needs. Gross debt as on June 2018 stood at Rs14.3bn as against Rs14.9bn on Mar 2018. In July 2018, SEL received Rs1.3bn from SIPL from MBCPNL securitisation proceeds. SEL expect gross debt reduction of Rs2-2.5bn in FY19 (on Mar-18 base) led by repayment of loans by SIPL.
SEL’s working capital levels are likely to reduce going forward led by improved debtor recoveries and receipt of mobilization advances for new HAM and new EPC projects (Rs7.4bn).
Order inflow for Q1FY19 stood at Rs13.1bn with current order backlog on gross basis (including GST) at Rs137bn (3.9x TTM revenue). SEL has guided for order inflow of ~Rs80bn in FY19.
Gross toll collection grew 13.9%yoy to Rs2.8bn led by strong traffic growth on key assets.

Key positives: Strong order backlog and recovery of L&As from SIPL.

Key negatives: ROW issue at Una Kodinar & Rampur Kathgodam Pkg II.

Impact on financials: Upgrade in FY19E/FY20E earnings by 2.5%/3.9% led by higher other income and lower effective tax rate.

Valuations & view

We estimate 20% revenue CAGR over FY18-20E for SEL, led by a strong order backlog of Rs137bn (3.9x FY18 revenue) and a high share of executable orders. Margins and working capital levels too should improve going forward, led by a better revenue mix, improved recoveries and receipt of yet to be drawn mobilization advances. We estimate 30.4% pre-tax earnings CAGR over FY18-20E. Adjusted for Rs139/sh (of SEL) value of SIPL, SEL trades at 8x FY20E standalone earnings. Maintain outperformer with a revised SoTP based TP of Rs424.

24/08/2018 9 EN

Underlying

Sadbhav Engineering

Sadbhav Engineering Limited is a construction company. The Company is engaged in the construction and maintenance of roads and highway, and irrigation system (canal). The Company is also engaged in the site preparation for mining, including overburden removal and other development. The Company's segments include EPC Contracts and BOT (Toll & Annuity). The Company has projects in the roads and highways, bridges, rail metro projects, irrigation supporting infrastructure, and the mining sector. Its engineering, procurement, construction (EPC) projects in roads and highways are Rohtak-Hissar section, Malavalli-Pavagada section, Ambala-Kaithal section, and Yamunanagar-Saha Barwala-Panchkula section of Haryana. The Company's Mining sector deals with excavation of overburden and mining of minerals, such as coal, uranium and lignite. It has excavation work at Mangrol lignite mines, Gujarat. It is also engaged in the construction of earthen dams, syphon, remodeling and improvement of canals.

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INE226H01026 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Sadbhav Engineering's Q1FY19 results (Outperformer) - HAM projects: key growth driver from H2

Increased risk weighs on SADBHAV ENGINEERING, penalising its rating down to Slightly Negative

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Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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