Sadbhav Engineering's Q1FY20 results (Outperformer) - Delay in appointed date impact revenues
Q1FY20 result highlights
- Sadbhav Engineering (SEL) reported a decline of 8% yoy in revenue in Q1FY20 to Rs8.1bn (est of Rs8.8bn) led by delay in appointed date for its portfolio of projects (worth Rs46bn) won in FY18.
- EBITDA declined by 2% yoy to Rs1.04bn in Q1FY20 (above our estimate of Rs1.0bn) aided by strong EBITDA margins of 12.5% (est 11.7%) an increase of 80 bps yoy. Other income (including interest income of Rs222m from SIPL) declined by 6%yoy to Rs269m in Q1FY20(below our estimate of Rs280m). Besides, Tax rate for Q1FY20 came in at 26% (vs 7% in Q1FY19) in line with management guidance (impact of 80IA wears off)
- As a result, PAT for Q1FY20 came in at Rs395m, decline of 38% yoy
- Order backlog is Rs108bn (3.1x book to bill ratio).
- SEL had lowered its FY20 revenue guidance from Rs45bn to Rs36bn. However, it expects the rest of the four HAM projects appointed dates to come by end of FY20 (one in Q2FY20 and rest three by end of FY20)
- Gross toll collections grew by mere 2.3% yoy to Rs2.8bn.
- Recently, SEL along with SIPL entered into an agreement to sell 9 operational assets to IND INFRA INVIT at an EV of Rs66bn (debt of Rs41bn). SIPL will realise Rs19bn in cash and Rs6bn in units of INVIT. Cash will be used to reduce the hold co debt of Rs11bn at SIPL and infuse equity in its under construction portfolio of HAM projects
- Moreover, SEL board is exploring to merge the subsidiary SIPL into SEL. This is likely to reduce holding company discount for SIPL, listed entity and will yield a simple company structure for SEL investors
Key positives: Deal to sell assets to IND INFRA INVIT
Key negatives: Muted gross toll collections in road projects.
Impact on financials: Downgrade our earnings estimates for FY20E/FY21E by 10%/8% yoy
Valuations & view
Delay in appointed dates for new HAM projects has impacted the revenues in last five quarters. However, all the projects are expected to receive appointed dates by end of FY20. Meanwhile, SEL has entered into a strategic deal to sell 9 operational assets which will reduce the holding company debt and will aid company in meeting its equity requirements. The stock trades at 9.5x FY21 standalone EPS without adjusting for value of 68% stake in SIPL. Maintain Outperformer with a revised SoTP based price target of Rs218 (reduce our earnings multiple).​
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.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.