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Sadbhav Engineering (SADE)
Construction
FY2011 annual report. Key highlights include (1) strong balance sheet quality with
low leverage (net debt:equity of 0.5X) and working capital improvement (down to 65
days of sales at end-FY2011 from 84 days), (2) execution of several orders in JV with
GKC (possible reasons: aided prequalification, subcontracting, reduced individual
project risk), and (3) incremental inflows remain key (relatively low order
announcements in FY2012E so far, only Rs2 bn, versus full-year estimate of Rs36 bn).
Balance sheet quality remains exceptionally strong with low leverage, working capital improvement
Sadbhav Engineering’s balance sheet quality remains exceptionally strong with (1) low leverage—
net debt:equity of only 0.5X at end-FY2011, and (2) improvement in working capital (excluding
cash and L&A to subsidiaries) to 65 days of sales (from 85 days) on lower debtor levels. Other key
highlights are (1) generates strong operating cash of Rs2 bn on decline in loans and advances to
subsidiaries, (2) likely to have received Rs4 bn of PE investment from Xander Group and Norwest
Venture Partners (reflected in net worth of SIPL), and (3) records strong progress across most BOT
projects.
Executing several projects in JV with GKC; several possible reasons for the same
The company is executing several projects in a joint venture with GKC Projects Ltd—Hyderabad.
Most of the orders won in FY2011 were won in JV with GKC Projects. We are unsure of the
rationale behind the strategy of bidding for majority of the projects in JV. We venture that the
reasons could be (1) aid in prequalification, (2) subcontracting and (3) mitigating individual project
risk by having a partner etc.
Order inflows key to meet FY2013E estimates; momentum low so far versus FY estimates
We note that new order inflows is key to meet our FY2012E and FY2013E estimates for Sadbhav
with strong progress in the execution of the existing BOT projects. Our estimates build in order
inflow of Rs35 bn in FY2012E, a growth of about 45% over FY2011 inflows of Rs24 bn. However,
order inflows have remained relatively muted in FY2012E so far; the company has announced only
two EPC orders to the tune of about Rs2.2 bn.
Marginally revise estimates; reiterate BUY with a target price of Rs180/share
We have revised our earnings estimates to Rs10.8 and Rs11.9 from Rs9.8 and Rs10.9 for FY2012E
and FY2013E. We have reduced our order inflow estimates to Rs35 bn and Rs41 bn for FY2012E
and FY2013E versus earlier assumption of Rs41 bn and Rs46 bn leading to small reduction in
revenue and EBITDA estimate. However, lower interest expense on lower debt levels leads to a net
positive impact on the PAT line. We retain our BUY rating with an SOTP-based target price of
Rs180/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sadbhav Engineering (SADE)
Construction
FY2011 annual report. Key highlights include (1) strong balance sheet quality with
low leverage (net debt:equity of 0.5X) and working capital improvement (down to 65
days of sales at end-FY2011 from 84 days), (2) execution of several orders in JV with
GKC (possible reasons: aided prequalification, subcontracting, reduced individual
project risk), and (3) incremental inflows remain key (relatively low order
announcements in FY2012E so far, only Rs2 bn, versus full-year estimate of Rs36 bn).
Balance sheet quality remains exceptionally strong with low leverage, working capital improvement
Sadbhav Engineering’s balance sheet quality remains exceptionally strong with (1) low leverage—
net debt:equity of only 0.5X at end-FY2011, and (2) improvement in working capital (excluding
cash and L&A to subsidiaries) to 65 days of sales (from 85 days) on lower debtor levels. Other key
highlights are (1) generates strong operating cash of Rs2 bn on decline in loans and advances to
subsidiaries, (2) likely to have received Rs4 bn of PE investment from Xander Group and Norwest
Venture Partners (reflected in net worth of SIPL), and (3) records strong progress across most BOT
projects.
Executing several projects in JV with GKC; several possible reasons for the same
The company is executing several projects in a joint venture with GKC Projects Ltd—Hyderabad.
Most of the orders won in FY2011 were won in JV with GKC Projects. We are unsure of the
rationale behind the strategy of bidding for majority of the projects in JV. We venture that the
reasons could be (1) aid in prequalification, (2) subcontracting and (3) mitigating individual project
risk by having a partner etc.
Order inflows key to meet FY2013E estimates; momentum low so far versus FY estimates
We note that new order inflows is key to meet our FY2012E and FY2013E estimates for Sadbhav
with strong progress in the execution of the existing BOT projects. Our estimates build in order
inflow of Rs35 bn in FY2012E, a growth of about 45% over FY2011 inflows of Rs24 bn. However,
order inflows have remained relatively muted in FY2012E so far; the company has announced only
two EPC orders to the tune of about Rs2.2 bn.
Marginally revise estimates; reiterate BUY with a target price of Rs180/share
We have revised our earnings estimates to Rs10.8 and Rs11.9 from Rs9.8 and Rs10.9 for FY2012E
and FY2013E. We have reduced our order inflow estimates to Rs35 bn and Rs41 bn for FY2012E
and FY2013E versus earlier assumption of Rs41 bn and Rs46 bn leading to small reduction in
revenue and EBITDA estimate. However, lower interest expense on lower debt levels leads to a net
positive impact on the PAT line. We retain our BUY rating with an SOTP-based target price of
Rs180/share.
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