IDFC Securities - Sadbhav Engineering (SADBHAV) Sadbhav Engineerings Q2FY20 results (Outperformer) - Weak quarter; Deal likely to close in Q3

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IDFC Securities

Shirish Rane

Sadbhav Engineering's Q2FY20 results (Outperformer) - Weak quarter; Deal likely to close in Q3

Q2FY20 result highlights

Revenue declined by 18% yoy to Rs5.7bn (est. of Rs8.8bn) in Q2FY20 due to delay in execution on projects of worth Rs36bn (delay in appointed dates for four projects). Overall, revenues have declined by 12% yoy in H1FY20.
EBITDA declined by 17% yoy to Rs696m in Q2FY20 (vs. Rs833m in Q2FY19 and below our estimate of Rs1bn. EBITDA margin improved to 12.3% (vs 12.1% in Q2FY19) led by increased execution on HAM projects. As a result, PAT in Q2FY20 declined by 33% yoy to Rs259m and was below our estimate of Rs418m.
Order backlog stands at Rs95bn (2.8x book to bill ratio). Orderbook declined during the quarter as company terminated a HAM project
SEL has maintained its FY20 revenue guidance of Rs36bn, flat growth despite 12% yoy revenue decline in H1FY20. Recently, it has received appointed date for Kim-Ankleshwar project and expects appointed date for Gadag Honali Projects in Q3.
Gross toll collections declined by 1.3% yoy to Rs2.7bn
Sadbhav Board has approved the merger with SIPL, its subsidiary. Minority shareholders of SIPL will get 1 share of SEL for every 3 shares of SIPL.
Stake sale to IND Infra INVIT: As on date, 8 of 9 SPVs of the proposed transaction have received approval from NHAI and lenders (except Ahmedabad Ring Road project valued at Rs2.7bn). Note that the management expects the transaction to complete by Dec - 2019.

Key positives: Received appointed date for Kim-Ankleshwar project of worth Rs10bn.

Key negatives: Delay in receiving appointed date of Tumkur-Shiamogga; Termination of Bhimsar Bhuj HAM project worth Rs11bn

Impact on financials: Maintain our earnings estimates for FY20E/FY21E.

Valuations & view

Delay in appointed dates for new HAM projects has impacted the revenues in last five quarters. However, remaining two projects are expected to receive appointed dates by end of FY20E. 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 FY21E standalone EPS without adjusting for value of 68% stake in SIPL. Maintain Outperformer with a SoTP based price target of Rs218.

19/11/2019 10 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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Analysts

Shirish Rane

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Sadbhav Engineering's Q2FY20 results (Outperformer) - Weak quarter; Deal likely to close in Q3

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

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