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Sadbhav Engineering (SADE)
Construction
Strong execution; order inflows to keep momentum going is key thing to watch.
Sadbhav Engg reported strong revenue of Rs6.1 bn (up 44% yoy) versus our estimate of
Rs5.7 bn likely led by execution of large orders some of which may be completed
before time earning bonus as well. In-line margin (11.1%) led to net PAT of Rs338 mn
(up 32%) versus our estimate of Rs309 mn. Key things to watch for are order inflows
(BOT, cash construction) so as to maintain growth momentum post slightly sedate
FY2011 on this count. Revise estimates. Retain BUY with TP Rs180 (versus Rs190) on
slightly lower order inflow expectation versus earlier.
Revenue beat likely led by execution of BOT orders, several projects likely completed ahead of time
Sadbhav Engg reported strong revenue growth of 44% in 1QFY11 to Rs6.1 bn, significantly ahead
of our estimate of Rs5.7 bn. The strong growth was likely led by strong execution of large BOT
projects in the backlog of the company. The company is also likely to have benefitted from start of
execution of (1) Rs14 bn Rohtak-Panipat project (recently achieved appointed date) and (2)
possibly its Rs14 bn NHAI cash project. We build in yoy topline growth of 36% for FY2012E.
Margin in line with estimate, contacts 80 bps on higher construction and other expenses
Sadbhav reported EBITDA margin of 11.1%, and in line with our estimate of 11%. Margin
declined 80 bps yoy on higher construction (60 bps) and other expenses (40 bps) as a percent of
sales. The company reported a net PAT of Rs338 mn, up 32.2% yoy and 9.4% ahead of our
estimate of Rs309 mn primarily on account of higher-than-expected revenue growth.
Awards part of Rs14 bn NHAI cash project to KNR Construction; increasing focus on mining
Sadbhav recently sub-contracted part of its Rs14 bn NHAI cash project (2-laning of NH-69A and
NH-26B) to KNR Construction for Rs5.8 bn. KNR was awarded execution of the Madhya Pradesh
stretch (NH-26B). In a recent interview, the company has also highlighted its focus on expanding
portfolio of development projects by bidding for long-term mining contracts. The company has
recently submitted a bid to develop and operate SAIL’s Tasra coal block at Dhanbad. Sadbhav has
bid through a JV (74% share) with Godwari and Ispat, banking on its expertise in coal washeries.
Revise estimates on lower expectation on order inflows; retain BUY rating on strong execution
We revise estimates to Rs9.8 and Rs10.9 from Rs10 and Rs12.1 for FY2012E and FY2013E,
respectively, as we lower our order inflow assumption (Rs41bn and Rs46 bn from Rs48bn and
Rs54 bn for FY12E and FY2013E respectively). Our earlier assumption appeared aggressive in
context of Rs24 bn inflows in FY2011. We revise our TP to Rs180 (from Rs190) and retain BUY on
(1) strong execution and order book, (2) strong balance sheet and (3) funded BOT projects.
Revise estimates on lower expectation on order inflows; retain BUY
We assume Rs41 bn and Rs46 bn of orders for FY2012E and FY2013E versus earlier
assumption of Rs48 bn and Rs54 bn earlier on back of Rs24 bn order in FY2011. Our SOTPderived
target price of Rs180 (Rs190 earlier) is comprised of (1) Rs99 /share (Rs108 earlier)
from the construction business based on EV/EBITDA multiple of 5X on FY2013E EBITDA
estimate, and (2) Rs85/share from stake in SIPL.
We reiterate our BUY recommendation on the stock based on (1) relatively attractive
valuations, (2) strong order book, which provides near-term earnings visibility and (3)
positive long-term outlook for infrastructural investments. Key risks include (1) sensitivity to
base-year traffic and traffic growth assumptions, (2) margin pressures due to volatility
incommodity prices, (3) higher-than-expected interest costs, and (4) deterioration in working
capital parameters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sadbhav Engineering (SADE)
Construction
Strong execution; order inflows to keep momentum going is key thing to watch.
Sadbhav Engg reported strong revenue of Rs6.1 bn (up 44% yoy) versus our estimate of
Rs5.7 bn likely led by execution of large orders some of which may be completed
before time earning bonus as well. In-line margin (11.1%) led to net PAT of Rs338 mn
(up 32%) versus our estimate of Rs309 mn. Key things to watch for are order inflows
(BOT, cash construction) so as to maintain growth momentum post slightly sedate
FY2011 on this count. Revise estimates. Retain BUY with TP Rs180 (versus Rs190) on
slightly lower order inflow expectation versus earlier.
Revenue beat likely led by execution of BOT orders, several projects likely completed ahead of time
Sadbhav Engg reported strong revenue growth of 44% in 1QFY11 to Rs6.1 bn, significantly ahead
of our estimate of Rs5.7 bn. The strong growth was likely led by strong execution of large BOT
projects in the backlog of the company. The company is also likely to have benefitted from start of
execution of (1) Rs14 bn Rohtak-Panipat project (recently achieved appointed date) and (2)
possibly its Rs14 bn NHAI cash project. We build in yoy topline growth of 36% for FY2012E.
Margin in line with estimate, contacts 80 bps on higher construction and other expenses
Sadbhav reported EBITDA margin of 11.1%, and in line with our estimate of 11%. Margin
declined 80 bps yoy on higher construction (60 bps) and other expenses (40 bps) as a percent of
sales. The company reported a net PAT of Rs338 mn, up 32.2% yoy and 9.4% ahead of our
estimate of Rs309 mn primarily on account of higher-than-expected revenue growth.
Awards part of Rs14 bn NHAI cash project to KNR Construction; increasing focus on mining
Sadbhav recently sub-contracted part of its Rs14 bn NHAI cash project (2-laning of NH-69A and
NH-26B) to KNR Construction for Rs5.8 bn. KNR was awarded execution of the Madhya Pradesh
stretch (NH-26B). In a recent interview, the company has also highlighted its focus on expanding
portfolio of development projects by bidding for long-term mining contracts. The company has
recently submitted a bid to develop and operate SAIL’s Tasra coal block at Dhanbad. Sadbhav has
bid through a JV (74% share) with Godwari and Ispat, banking on its expertise in coal washeries.
Revise estimates on lower expectation on order inflows; retain BUY rating on strong execution
We revise estimates to Rs9.8 and Rs10.9 from Rs10 and Rs12.1 for FY2012E and FY2013E,
respectively, as we lower our order inflow assumption (Rs41bn and Rs46 bn from Rs48bn and
Rs54 bn for FY12E and FY2013E respectively). Our earlier assumption appeared aggressive in
context of Rs24 bn inflows in FY2011. We revise our TP to Rs180 (from Rs190) and retain BUY on
(1) strong execution and order book, (2) strong balance sheet and (3) funded BOT projects.
Revise estimates on lower expectation on order inflows; retain BUY
We assume Rs41 bn and Rs46 bn of orders for FY2012E and FY2013E versus earlier
assumption of Rs48 bn and Rs54 bn earlier on back of Rs24 bn order in FY2011. Our SOTPderived
target price of Rs180 (Rs190 earlier) is comprised of (1) Rs99 /share (Rs108 earlier)
from the construction business based on EV/EBITDA multiple of 5X on FY2013E EBITDA
estimate, and (2) Rs85/share from stake in SIPL.
We reiterate our BUY recommendation on the stock based on (1) relatively attractive
valuations, (2) strong order book, which provides near-term earnings visibility and (3)
positive long-term outlook for infrastructural investments. Key risks include (1) sensitivity to
base-year traffic and traffic growth assumptions, (2) margin pressures due to volatility
incommodity prices, (3) higher-than-expected interest costs, and (4) deterioration in working
capital parameters.
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