MOSL: SADBHAV ENGG. (Buy)-A quarter characterized by weaker-than-expected execution
Sadbhav Engg.: A quarter characterized by weaker-than-expected execution
(SADE IN, Mkt Cap USD0.5b, CMP INR221, TP INR275, 25% Upside, Buy)
- Operating performance below expectations: Revenue declined 0.4% YoY (LTL growth of 11.6%) to INR6.9b, below our estimate of INR7.6b. EBIDTA increased 6% YoY to INR833m, also below our estimate of INR880m. Operating margin of 12.1% (+70bp YoY) was above our estimate of 11.5%. PAT increased 14.3% YoY to INR383m, below our estimate of INR426m. Overall operating performance was below our expectation due to weaker-than-expected execution of projects in hand.
- In-house HAM projects execution supports Transport revenue: Although Transport segment (94% of revenue) grew by a muted 6% YoY (INR649m v/s INR614m in 2QFY18), the revenue mix has tilted more toward in-house HAM projects. HAM EPC contributed 71% of Transport revenue (+522% YoY), while third-party EPC formed 29% (-65% YoY as third-party order book available for execution declined YoY). Irrigation segment (2% of revenue) de-grew by 48% YoY due to lower order backlog available for execution. Mining revenue declined by 49% YoY to INR242m. Management guided for revenue of INR40b in FY19, led by pick-up in execution of 12 in-house HAM projects. It, however, lowered the FY20 revenue guidance to INR50b (prior: INR53-54b), as challenges in land acquisition are leading to a delay in procuring the appointed date from the NHAI.
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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