Sadbhav Engineering - Primed for Strong Growth; Result Update Q3FY15:: Edelweiss

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Sadbhav Engineering’s (SEL) Q3FY15 numbers were encouraging with top line surging 16% YoY. Aided by tax write back, PAT jumped a robust 45% YoY. The company’s order book remains healthy at INR82bn (2.9x TTM revenue). In addition, anticipated pick up in mining activities along with likely award of ~INR500bn road projects over the next couple of years imply that SEL’s order inflow prospects remain strong. Traffic on its BOT projects has seen sharp growth over the past 2-3 quarters, boosting valuations. We believe SEL remains in pole position to benefit from improving environment in both EPC and BOT businesses.

Execution remains strong

SEL’s revenue jumped 16% YoY aided by strong execution in captive BOT projects. However, EBITDA margin dipped 20bps YoY to 10.2% due to higher contribution from lower margin irrigation projects (19% of total revenue against 10% in Q3FY14). Interest costs at INR199mn were lower 11% YoY with the company having raised INR2.5bn through a QIP during the quarter. Tax reversals due to section 80 (IA) benefits meant that PAT at INR377mn was higher 45% YoY.

BOT revenue continues to improve

The company’s toll projects have seen strong traffic growth over the past couple of quarters. Toll revenue in its BOT projects grew 7-18% YoY. Projects like Ahmedabad Ring Road, Aurangabad Jalna, Bijapur Hungund and Hyderabad Yadgiri witnessed double digit toll growth for the second quarter in a row. Management indicated that current INR3mn daily toll collection on the Maharashtra Border Check post project indicates double digit traffic growth QoQ.

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https://www.edelweiss.in/research/Sadbhav-Engineering--Primed-for-Strong-Growth;-Result-Update-Q3FY15/28479.html