MOSL: SADBHAV ENGG. (Downgrade to Neutral)-Execution hurdles mar operational performance
Sadbhav Engg.: Execution hurdles mar operational performance; Downgrade to Neutral
(SADE IN, Mkt Cap USD0.6b, CMP INR253, TP INR275, 9% Upside, Downgrade to Neutral)
- Operational performance below expectation: Revenue declined 7.5% YoY to INR10.2b (our est. INR12.7b), while EBIDTA inched up 2% YoY to INR1.3b (our est. INR1.4b). Operating margin of 12.4% (+120bp YoY) was above our est. of 11.0%. Adj PAT declined 59% YoY to INR286m, below our est. of INR741m impacted by higher-than-estimated tax rate (65% v/s est. of 12%) due to non-availability of 80IA tax benefits on projects executed during FY19.
- Disappointment on execution front continues: SADE's below estimated performance was impacted by weak execution with revenue declining 7.5% YoY to INR10.2b (our est. INR12.7b). For FY19, revenue stood at INR35.5b (-1% YoY), despite healthy order book of INR132b being available for execution at the start of the year (3.8x FY18 revenue). SADE missed its revenue guidance of INR42b provided in early-FY19 and also missed revised guidance of INR38b issued in mid-FY19. Execution pick-up has been weak despite executable order book increasing to 73% v/s 47% in 3QFY19. Management has refrained from issuing revenue guidance for FY20 (earlier revenue guidance of INR50b for FY20) as it awaits clarity on appointed dates for projects worth INR30.5b.
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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