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Sadbhav Engineering (SADE)
Construction
Strong results; in line to meet full-year estimates. Strong 2QFY11 revenue growth
of 41% yoy was likely led by execution of 2 large BOT projects. Our full-year FY2011E
estimates imply a revenue growth requirement of about 45% in 2HFY11E and flat
margins – in line with the trend recorded in 1HFY10. Working capital declined by about
Rs1.2 bn from end-FY2010 level led by higher current liabilities. Sadbhav recently won a
large Rs14 bn order from NHAI which further boosts the strong backlog. Retain BUY.
Strong results continue led by execution of large orders
Strong revenue growth: Sadbhav reported a strong revenue growth of 41% yoy in 2QFY11
to Rs2.6 bn likely led by pick-up in execution of the two large BOT road projects in the backlog.
The sequential decline in revenues is in line with historical trend. The second quarter is typically
a weaker quarter (forms about 60-65% of 1Q revenues) as it is the monsoon season.
EBITDA margin expands by 100 bps: Sadbhav reported an EBITDA margin of 12%, up 100
bps yoy and relatively flat on a sequential basis. The company reported a net PAT of Rs137 mn,
versus 2QFY10 PAT of Rs37 mn.
1HFY11 performance: In the half year ending September 30, 2010, Sadbhav reported
revenues of Rs6.9 bn, up 42% yoy. Margins expanded by about 80 bps yoy to 12% leading to
a net PAT of Rs393 mn in 1HFY11, up 82% yoy from Rs216 mn in 1HFY10 (Exhibit 1).
In line to meet full-year estimates
Our revenue estimate of Rs18 bn in FY2011E (up 43.7% yoy) and 11.3% margin implies a revenue
growth requirement of 45% in 2HFY11E with flat margins on a yoy basis - broadly in line with the
trend seen in 1HFY10 (Exhibit 2).
Other highlights: Net WCap. reduction on higher current liabilities, award of a large EPC contract
Other highlights are (1) net working capital declined by Rs1.2 bn (from end-FY2010) led by higher
current liabilities (up Rs3.6 bn); sundry debtors increased by Rs731 mn from end-FY2010 level
(exhibit 3), and (2) won an EPC order worth Rs14 bn in Oct-10 from NHAI for the rehabilitation
and up-gradation to 2-lane of Multai-Chhindwara-Sconi section in MP and Maharashtra.
Retain estimates and target price of Rs1,750/share; reiterate BUY
We maintain our estimates of Rs62 and Rs84 for FY2011E and FY2012E. We reiterate BUY with a
target price of Rs1,750/share based on – (1) relatively attractive valuations, (2) strong order book,
and (3) positive outlook for infrastructural investments.
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