IDFC Securities - Sadbhav Engineering (SADBHAV) Sadbhav Engineerings Q4FY19 results (Outperformer) - Below estimates: Lower revenues and higher tax rates

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IDFC Securities

Shirish Rane

Sadbhav Engineering's Q4FY19 results (Outperformer) - Below estimates: Lower revenues and higher tax rates

Q4FY19 result highlights

Sadbhav Engineering (SEL) Sadbhav Engineering (SEL) reported a decline of 8% yoy in revenue in Q4FY19 to Rs10.2bn (est of Rs12.8bn) and moderate 9% yoy growth in FY19 led by delay in appointed date for its portfolio of projects won in FY18.
EBITDA grew 2.1% yoy to Rs1.26bn/Rs4.3bn in Q4FY19 (below estimate of Rs1.54bn)/FY19. EBITDA margins were strong at 12.4% (est 12.0%) /12.1% in Q4FY19/FY19 increase of 80bp/30bp yoy
Other income (including interest income of Rs177m from SIPL) grew 77%yoy to Rs330m and was ahead of estimate of Rs280m.
Interest expense (gross) grew by 13%yoy to Rs557m (est: Rs475m). Gross debt was Rs14.9bn at end of March 2019. Loans to SIPL stand at ~Rs4.6bn as on March 2019. Tax rate for Q4FY19/FY19 came in at 65%/27% (vs est of 14% for FY19)
As a result, PAT for Q4FY19/FY19 came in at Rs281m/Rs1.9bn,decline of 60%/16% yoy
Order backlog at Rs120bn (3.4x book to bill ratio). The bid pipeline from NHAI is healthy at Rs1trn.
SEL had lowered its FY20 revenue guidance from Rs50bn to Rs45bn at end of Q3FY19. However, it highlighted the uncertainty in FY20 revenues given the delay in appointed dates for HAM projects
Gross toll collections grew 6.6%yoy to Rs2.8bn in Q4FY19 led by traffic decline on Rohtak-Panipat, Bijapur-Hungud and Dhule-Palesner. Other projects witnessed moderate/weak growth.

Key positives: Strong order backlog

Key negatives: Delay in appointed dates for new HAM projects.

Impact on financials: Downgrade our earnings estimates for FY20E on increased uncertainty and high tax rates (27% from earlier 20%) and introduce our FY21E estimates at Rs2.5bn

Valuations & view

Delay in appointed dates for new HAM projects has impacted the revenues in FY19. However, all the projects are expected to receive appointed dates by Q2FY20. he revenues in FY19ft Rslthy at Rs1trn reinted date for its portfolio of projects won in Fyposition than ahead of themMeanwhile, SEL is looking to monetise assets (albeit delayed) and the management remains committed to completing the same over the next few months which will aid company in meeting its equity requirements. The stock trades at 18x FY21 standalone EPS without adjusting for value of 68% stake in SIPL. Maintain Outperformer with a SoTP based price target of Rs286.

04/06/2019 1 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

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

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