MOSL: SADBHAV ENGG. (Buy)-In-line performance-focus on balance sheet improvement
​Sadbhav Engg.: In-line performance; focus on balance sheet improvement
(SADE IN, Mkt Cap USD0.8b, CMP INR316, TP INR385, 22% Upside, Buy)
- Operating performance broadly in-line: SADE’s revenue grew 12.6% YoY to INR6.9b, below our estimate of INR7.5b. EBIDTA came in at INR788m (+20.5% YoY), in line with our estimate of INR797m. PAT rose 81% YoY to INR335m, ahead of our estimate of INR291m, primarily on account of tax write-back taken by the company.
- Revenue growth led by robust execution in Transport: Transport segment (88% of revenue) grew at a robust 34%, EPC segment at 27% YoY and BoT segment (in-house HAM projects) at 122% YoY. Irrigation segment (4% of revenue) declined 67% YoY on account of lower order backlog available for execution, seasonal factors, and multiple projects reaching completion.
- Margin expansion led by execution of better-margin orders: Operating margin stood at 11.4% (+80bp YoY) in 2QFY18, led by execution of in-house HAM projects (where margins are better compared to third-party EPC contracts) and also value-accretive projects. SADE maintained its guidance of 11.5% growth in FY18, given pick-up in execution of in-house HAM projects.
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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