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Sadbhav Engineering (SADE)
Construction
Strong revenues; but margin decline and high interest cost mar net-level results.
Sadbhav Engineering reported strong revenue of Rs4.3 bn (up 65% yoy) in line with our
estimate. However lower-than-expected EBITDA margin at 10.5% (down 150 bps yoy,
our estimate of 11%) and high interest cost (of Rs154 mn, up 22% qoq) led to a miss
at the net PAT level (reported Rs181 mn, 21% below estimate). Key things to watch for
are order inflows (BOT, cash construction) so as to maintain growth momentum post
sedate inflows in FY2012E so far. Retain BUY (TP: Rs180/share).
Strong revenue growth (in-line) likely on back of strong execution of BOT projects
Sadbhav Engineering reported strong revenue growth of 65% in 2QFY12 to Rs4.3 bn, in line with
our estimates. The strong growth was likely led by strong execution of its large BOT project
portfolio (close to 50% of FY2011 year-end backlog. The company is also likely to have benefitted
from start of execution of (1) Rs14 bn Rohtak-Panipat project (achieved appointed date in Apr-11)
and (2) Rs14 bn NHAI cash project. 1H sales at Rs10.4 bn have grown 52% yoy.
Sharper-than-expected margin contraction and high interest cost mar net results
Sadbhav reported EBITDA margin of 10.5% versus our estimate of 11% and 2QFY11 EBITDA
margin of 12%. The 150 bps yoy margin decline was primarily on higher construction expenses
(up 300 bps) partly buffered by lower other expenses as percent of sales (down 170 bps). The
company also reported higher-than-expected interest cost of Rs154 mn for the quarter (versus our
estimate of Rs118 mn), a 22% increase on a sequential basis. The lower-than-expected margin
and high interest cost led to a net PAT of Rs181 mn, up 32% yoy, about 21% below our estimate
of Rs230 mn.
New orders key with progress in execution of existing BOT assets; inflows sedate in FY2012E so far
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. We expect the company
to win about 2-3 large BOT projects in FY2012E leading to Rs15 bn of order inflows in that
segment. Note that 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.
Retain estimates; reiterate BUY with a target price of Rs180/share
We retain our estimates of Rs10.8 and Rs11.9 for FY2012E and FY2013E. Reiterate BUY with a
target price of Rs180/share based on (1) attractive valuations, (2) strong order book which provides
near-term revenue visibility, and (3) strong balance sheet quality.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sadbhav Engineering (SADE)
Construction
Strong revenues; but margin decline and high interest cost mar net-level results.
Sadbhav Engineering reported strong revenue of Rs4.3 bn (up 65% yoy) in line with our
estimate. However lower-than-expected EBITDA margin at 10.5% (down 150 bps yoy,
our estimate of 11%) and high interest cost (of Rs154 mn, up 22% qoq) led to a miss
at the net PAT level (reported Rs181 mn, 21% below estimate). Key things to watch for
are order inflows (BOT, cash construction) so as to maintain growth momentum post
sedate inflows in FY2012E so far. Retain BUY (TP: Rs180/share).
Strong revenue growth (in-line) likely on back of strong execution of BOT projects
Sadbhav Engineering reported strong revenue growth of 65% in 2QFY12 to Rs4.3 bn, in line with
our estimates. The strong growth was likely led by strong execution of its large BOT project
portfolio (close to 50% of FY2011 year-end backlog. The company is also likely to have benefitted
from start of execution of (1) Rs14 bn Rohtak-Panipat project (achieved appointed date in Apr-11)
and (2) Rs14 bn NHAI cash project. 1H sales at Rs10.4 bn have grown 52% yoy.
Sharper-than-expected margin contraction and high interest cost mar net results
Sadbhav reported EBITDA margin of 10.5% versus our estimate of 11% and 2QFY11 EBITDA
margin of 12%. The 150 bps yoy margin decline was primarily on higher construction expenses
(up 300 bps) partly buffered by lower other expenses as percent of sales (down 170 bps). The
company also reported higher-than-expected interest cost of Rs154 mn for the quarter (versus our
estimate of Rs118 mn), a 22% increase on a sequential basis. The lower-than-expected margin
and high interest cost led to a net PAT of Rs181 mn, up 32% yoy, about 21% below our estimate
of Rs230 mn.
New orders key with progress in execution of existing BOT assets; inflows sedate in FY2012E so far
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. We expect the company
to win about 2-3 large BOT projects in FY2012E leading to Rs15 bn of order inflows in that
segment. Note that 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.
Retain estimates; reiterate BUY with a target price of Rs180/share
We retain our estimates of Rs10.8 and Rs11.9 for FY2012E and FY2013E. Reiterate BUY with a
target price of Rs180/share based on (1) attractive valuations, (2) strong order book which provides
near-term revenue visibility, and (3) strong balance sheet quality.
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