sadbhav engineering limited relative : overweight regular...
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May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 1 of 13
Before reading this report, you must refer to the disclaimer on the last page.
Sadbhav Engineering Limited Absolute : LONG
Relative : Overweight
4QFY17 Result: Estimate (), Target (), Rating () Regular Coverage 20% ATR in 13 Months
Smart Move to HAM + WC Streamlining + Debt Reduction to support multiple re-rating Construction
© 2017 Equirus All rights reserved
Rating Information
Price (Rs) 314
Target Price (Rs) 382
Target Date 30th Jun'18
Target Set On 30th May'17
Implied yrs of growth (DCF) 15
Fair Value (DCF) 299
Fair Value (DDM) 152
Ind Benchmark BSE Midcap
Model Portfolio Position NA
Stock Information
Market Cap (Rs Mn) 53,976
Free Float (%) 53.24 %
52 Wk H/L (Rs) 350.9/220
Avg Daily Volume (1yr) 147,396
Avg Daily Value (Rs Mn) 43
Equity Cap (Rs Mn) 172
Face Value (Rs) 1
Bloomberg Code SADE IN
Ownership Recent 3M 12M
Promoters 46.8 % 0.0 % -0.4 %
DII 31.3 % 5.2 % 4.4 %
FII 17.2 % 0.3 % 2.2 %
Public 4.8 % -5.5 % -6.2 %
Price % 1M 3M 12M
Absolute -5.8 % 13.4 % 13.0 %
Vs Industry -10.0 % 5.0 % -3.5 %
Ashoka -0.9 % 12.4 % 43.0 %
PNC Infra -8.4 % 42.8 % 25.8 %
Standalone Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (17A) 2.8 1.1 3.1 4.0
EPS (18E) 2.8 0.6 4.8 5.4
Sadbhav outperformed on execution and profitability front but saw a spike in WC
due to higher requirement related to EPC projects. The company has managed to
build a sizeable order book of Rs. 92.6bn with a focus on HAM in FY17. With
reducing margin and WC overhangs of legacy irrigation and NHAI EPC projects, the
sizeable share of HAM projects should enable margin expansion and WC
improvements. We maintain our LONG rating & obtain a Jun’18 SOTP based TP of
Rs. 382/share (vs. earlier Jun’18 TP of Rs. 379/share).
Recent HAM wins boost order book to Rs. 92.6bn and pave the way for steady
growth: Post the recent HAM wins, BOT/HAM share has risen to >50% of FY17 order
book. Rising acceptance of HAM model amidst lower competitive intensity could
lead to rise of BOT/HAM share to 65-70% in Sadbhav’s order books by FY20E. We
expect small order inflows across EPC, Mining and Irrigation verticals and are
confident of 3 year revenue CAGR of 19% till FY20E.
Expect shift in revenue mix away from EPC projects to enable margin
expansions along with WC improvements: We expect the share of WC intensive
EPC projects in overall execution to reduce post Jun’17. We have observed lower
competitive intensity in recently bid HAM projects and also expect a more efficient
WC cycle for these projects. We have modelled a reduction in non cash WC levels
from ~58% in FY17 to 25% by FY19E.
Value unlocking of Sadbhav Infra subsidiaries + WC improvements to enable
debt reduction at standalone level: Our channel checks suggest that the value
unlocking of Sadbhav Infra subsidiaries is in advanced stages. We expect the deal
to be announced by 1QFY18E and entire money to be received by 3QFY18E. Along
with this, the above anticipated WC improvements should support Standalone debt
reduction from Rs. 15.2bn in FY17 to Rs. 10.2bn/Rs. 3.4bn in FY18E/FY19E.
Re-rating apparent due to lined up triggers and relative price movements,
Valuations provide comfort amidst business consolidation: Smooth HAM
execution and Sale of BOT Projects are inevitable re-rating triggers from current
levels. After netting off the BOT Valuations, the EPC business is trading at
~1.3x/1.2x FY18E/FY19E P/B with RoEs of 13%/17% and 11x/8x FY17A/FY18E P/E
at 33%/29% 2/3 year EPS CAGR. Weak order inflows and lower execution are key
downside risks to our estimates.
Change in Standalone Estimates
% change over previous estimates
FY18E FY19E FY18E FY19E
Sales 39,879 44,823 1.3% 0.0%
EBITDA 4,578 5,630 1.8% 9.8%
PAT 2,338 3,321 -4.0% 16.0%
EPS 13.6 19.4 -4.0% 16.0%
Standalone Financials Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 33,203 39,879 44,823 56,630
EBITDA 3,556 4,578 5,630 6,321
Depreciation 1,000 995 1,035 1,077
Interest Expense 992 1,206 533 288
Other Income 333 349 367 385
Reported PAT 1,879 2,338 3,321 4,006
Recurring PAT 1,879 2,338 3,321 4,006
Total Equity 16,609 18,596 20,921 23,725
Gross Debt 15,183 10,194 3,419 3,947
Cash 230 1,077 1,383 1,713
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 11.0 13.6 19.4 23.4
Book Value 97 108 122 138
Dividends 0.7 1.7 5.0 0.0
FCFF -19.8 44.9 55.9 14.9
P/E (x) 28.7 23.0 16.2 13.4
P/B (x) 3.2 2.9 2.6 2.3
EV/EBITDA (x) 19.4 13.8 9.9 8.9
ROE (%) 12% 13% 17% 18%
Core ROIC (%) 11% 13% 17% 19%
EBITDA Margin (%) 10.7% 11.5% 12.6% 11.2%
Net Margin (%) 6% 6% 7% 7%
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 2 of 13
Standalone Quarterly Result Table
Rs Mn 4QFY17 4QFY17E 3QFY17 4QFY16 % Change
Comments 4QFY17E 3QFY17 4QFY16
Net Sales 10,329 9,557 8,648 8,580 8% 19% 20%
Construction Expenses 8,106 7,742 6,986 6,900 5% 16% 17%
Employees Cost 379 325 319 315 17% 19% 20%
Other Expenses 748 474 405 456 58% 85% 64%
Total Expenditures 9,233 8,540 7,710 7,671 8% 20% 20%
EBITDA 1,096 1,017 939 909 8% 17% 21%
Depreciation 243 252 250 335 -4% -3% -28%
EBIT 854 765 689 573 12% 24% 49%
Interest 355 259 243 293 37% 46% 21%
Other Income 218 157 60 225 39% 262% -3%
PBT 716 662 506 504 8% 42% 42%
Tax 33 33 -19 64 1% -277% -47%
Recurring PAT 683 629 525 441 8% 30% 55%
Extraordinaries 0 0 0 91
Reported PAT 683 629 525 350 8% 30% 95%
EPS (Rs) 4.0 3.7 3.1 2.0 8% 30% 95%
EBITDA Margin 10.6% 10.6% 10.9% 10.6% -3 bps -24 bps 2 bps EBITDA margins slightly better than expectations
EBIT Margin 8.3% 8.0% 8.0% 6.7% 26 bps 30 bps 158 bps
PBT Margin 6.9% 6.9% 5.8% 5.9% 0 bps 108 bps 105 bps
PAT Margin 6.6% 6.6% 6.1% 4.1% 2 bps 54 bps 253 bps
Tax Rate 4.7% 5.0% -3.7% 12.6% -33 bps 840 bps -794 bps
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 3 of 13
Key Quarterly Updates Exhibit 1: Execution in Cash Contracts picked upsignificantly FY17
Revenue (Rs. Mn) Mar-
15
Jun-
15
Sep-
15
Dec-
15
Mar-
16
Jun-
16
Sep-
16
Dec-
16 Mar-17
Transport 6,593 5,066 5,926 5,596 5,618 5,607 4,577 6,902 8,237
BOT Projects 4,698 4,070 4,610 4,281 4,016 1,114 333 419.8 1,461
Cash Contracts 1,894 996 1,316 1,315 1,601 4,493 4,244 6,482 6,776
Irrigation 1,683 2,006 315 1,003 2,035 1,684 902 739.3 1,255
Mining 1,389 1,202 1,198 921 871 723 658 1001.8 785
Power Generation 10 18 20 9 46 22.2 19 5.4 42
Total Revenues 9,675 8,293 7,459 7,530 8,579 8,036 6,156 8,648 10,329
Source:Company, Equirus Securities
Exhibit 2: Toll collections hit due to demonetization in some stretches
Name of SPV Units 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17** 4Q17
Ahmedabad Ring Road Rs. Mn 213 231 246 237 227 216 240
Aurangabad Jalna* Rs. Mn 69 80 88 100 88 85 91
DhulePalasner Rs. Mn 368 384 391 418 399 383 449
Hyderabad Yadgiri Rs. Mn 119 142 153 149 125 125 153
BijapurHungund Rs. Mn 282 280 302 304 286 241 293
RohtakPanipat Rs. Mn 199 220 181 205 193 182 225
Maharashtra Border Check Post Rs. Mn 367 416 432 415 406 370 448
Shreenathji Udaipur Rs. Mn - 61 228 252 243 236 250
Bhilwara Rajsamand Rs. Mn - - - 23 94 95 105
Rohtak Hissar Rs. Mn - - - - 83 120 130
Total Toll Collections Rs. Mn 1,615 1,813 2,021 2,101 2,144 2,052 2,383
* 3Q17 numbers are calculated for some portion of the quarter due to impact of demonetization
** In MBCPNL, 13 checkposts were operational till 26th Jan'17 while 16 checkposts were
operational from 27th Jan'17. In 4Q16, 13 checkposts were operational
Source: Company BSE filings, Equirus Securities
Exhibit 3: Segment wise Details of Order Book
Order Book Segment Rs. Mn %age
Transport 49,969 65%
BOT 32,038 42%
Cash Contracts 17,931 23%
Mining 16,966 22%
Irrigation 9,899 13%
Total Order Book 76,834 100%
Source: Quarterly BSE Update, Equirus Securities Valuation
SOTP Valuation
Main changes in current and earlier SOTP Valuations:
a) EPC Business Valuation higher by Rs. 3/share: We have maintained the earlier 15x TTM FY17E P/E multiple but have factored higher EBITDA margins of 11% on Standalone basis.
Exhibit 4: Current SOTP Valuation
Valuation Snapshot Rs. Mn Rs./share
Net Sales 40,589
Net Profit Margin 6.1%
Net Profit 2,490
P/E 15
Valuation of EPC Business (A) 37,343 218
Overall Valuation of BOT Projects 49,421 288
MNEL
ARR 3,357 20
AJT 1,190 7
NSE -8 -0
MBCP 21,512 125
DPT 4,095 24
HYT 2,286 13
RPT -2,738 -16
BHT 5,443 32
MBT 1,836 11
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 4 of 13
SUTPL 4,797 28
RBT 4,948 29
RHT -856 -5
Hybrid Annuities 3,559
-RK1 640 4
-RK2 670 4
-BT 767 4
-UK 512 3
-BRT 1,016 6
-WM -95 -1
-UB 49 0
Add: Standalone SIPL 4,988 29
Less: Profit on BHT and DPT Sale 3,600 21
Valuation of SIPL 50,808 296
SEL's Holding 69%
Holding Company Discount 20%
Stake Adjusted Contribution to SEL 28,160 164
Total SEL Valuation 65,503 382
Source: Equirus Securities
Exhibit 5: Previous SOTP Valuation
Valuation Snapshot Rs. Mn Rs./share
Net Sales 40,605
Net Profit Margin 6.0%
Net Profit 2,451
P/E 15
Valuation of EPC Business (A) 36,872 215
Overall Valuation of BOT Projects 51,518 300
MNEL
ARR 2,858 17
AJT 1,651 10
NSE -32 -0
MBCP 21,253 124
DPT 3,345 20
HYT 2,053 12
RPT -972 -6
BHT 5,322 31
MBT 1,672 10
SUTPL 5,316 31
RBT 5,486 32
RHT 2,814 16
Hybrid Annuities 753
-RK1 101 1
-RK2 190 1
-BT 169 1
-UK 57 0
-BRT 280 2
-WM -95 -1
-UB 49 0
Add: Standalone SIPL 3,618 21
Less: Profit on BHT and DPT Sale 3,600 21
Valuation of SIPL 51,536 300
SEL's Holding 68%
Holding Company Discount 20%
Stake Adjusted Contribution to SEL 28,180 164
Total SEL Valuation 64,950 379
Source: Equirus Securities
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 5 of 13
Key Highlights of the Con call
Bidding activity across sectors: NHAI has gone slow on order awarding & company is
looking to bid for Metro Projects
NHAI has gone slow on awarding new projects due to the land acquisition issues
related to the already awarded projects. Till this gets resolved, the awarding
activity will be slow
Currently financial bids for 10 EPC projects having combined length of 447kms & cost
of Rs. 73.7bn are to be submitted by Jun’17
Additionally bids for 5 EPC projects by Gujarat government covering a length of
197kms & costing Rs. 23.7bn are to be submitted by Jun’17
Vadodara Expressway project worth Rs. 72bn will come under EPC segment
HAM projects worth Rs. 180-190bn are coming up for bidding over next 3 months
In Mining, 7 projects for OB removal worth Rs. 28.7bn and 3 MDO projects are coming
up for bidding by Jun’17
In Irrigation, 5 projects worth Rs. 13.4bn in states of AP, Karnataka & MP are coming
up for bidding
Company is also actively bidding for Phase I & Phase II Metro projects in cities like
Mumbai, Pune, Ahmedabad, Bangalore etc.
Order Book Update:
The order book of the company as on Mar’17 stood at Rs. 76.8bn. Following is the
breakup:
65% from Roads 22% from Mining & 13% from Irrigation
Company will be handing over Rs. 1.2bn of Mining order from BCCL over next few
months due to issues related to service tax (Rs. 350mn payment related to service
tax is yet to be received from BCCL by the company)
The irrigation OB will be fully completed by FY19 while the entire o/s OB of EPC
contracts would be executed in FY18
Company is looking to get incremental orders of Rs. 60-70bn in FY18
It is also L1 is a Rs. 1.4bn Mining contract wherein LOA is expected soon
OB intake for FY17 was Rs 47bn
Update on HA Projects:
3 HA projects have got appointed dates and the EPC work has already been started
by SEL. The revenues recognized in 4QFY17 from these 3 projects was Rs. 414mn
2 projects (Rampur Kathgodam pckg. II and BRT reserve) are expected to receive the
appointed dates in next few months and they will start contributing to the topline by
2QFY18
The 2 new HA projects (Mahagaon& Udaipur Bypass), are yet to achieve FC and they
would start contributing to the topline by 2HFY18
Company has closed Loan term sheets with lenders for all the 5 HA projects wherein
they will have to bring in only 25-30% of equity upfront while 25% of equity will be
funded via BG at time of COD. The average interest rate is around 9.25%
In Warangal-Mahagaon project, 80% land is not available but state government has
assured that land would be available within next 6 months. In Udaipur Bypass, more
than 80% land is available
Top 5 projects by execution in 4QFY17
Project Name Segment Rs. Mn
Eastern Peripheral Expressway II Road EPC 1,763
Eastern Peripheral Expressway I Road EPC 1,860
Yamunagar Panchkula Pckg II Road EPC 852
Yamunagar Panchkula Pckg I Road EPC 818
Rohtak Hissar Road BOT 559
Additional Info
Company has repaid Rs. 1.65bn to NHAI towards Mobilization advance since it would
have cost nearly 18% interest cost after 1 year of Moratorium. This was in addition to
Rs. 1.13bn repaid in 3QFY17. Due to this, finance cost & short term loans have
increased in 4QFY17
SEL did a capex of Rs. 390mn in FY17
Company has pumped in around Rs. 2.7-2.9bn of WC in the JV projects of Metro EPC
and Irrigation projects for finishing the projects. Company has received around Rs.
900mn of this due to finishing of 2 Irrigation projects
Company expects tax rate of 20% in FY18 but full tax rate to apply from FY19 due to
ending of incentives on Road EPC projects
Debt from SIPL stood at Rs. 4.3bn which has increased slightly vs. 3QFY17 due to
funding done by company in Mysore Bellary as Authority had not provided the
required Grant amount. However the company has now received the Grant and so
debt level should come down
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 6 of 13
Guidance: Expecting to clock revenues of Rs. 38bn in FY18
SEL expects WC debt to reduce by Rs. 2bn in 1HFY18 and by Rs. 2.5bn in 1HFY19 due
to finishing of milestone based EPC projects and some legacy Irrigation projects
Company expects revenues of Rs. 38bn in FY18 on current OB not considering the 2
new HA projects
- Rs. 13.5bn is expected from road projects
- Rs. 15.5bn from HA projects
- Rs. 5bn from Irrigation projects
- Rs. 4bn from Mining projects
EBITDAM expected to improve to 11% due to more contribution from HA projects
WC strain would be less in HA projects vs. EPC projects as they do not have
milestone based payments but monthly payments as per certified bills
Company would be doing a capex of Rs. 500mn in FY18
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 7 of 13
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 13.6 12.1 13 % Expect consensus to upward revise their
guidance in line with management’s
commentary of better margins inFY18&
lower tax outgo due to MAT credit
entitlement
FY19E 19.4 13.4 45 %
Sales FY18E 39,879 39,400 1 %
FY19E 44,823 44,513 1 %
PAT FY18E 2,338 2,069 13 %
FY19E 3,321 2,299 44 %
Our Key Investment arguments: Valuations at comfortable levels after factoring base
growth scenario and assumptions for EPC and BOT business
Key Parameters Units FY16A FY17A FY18E FY19E FY20E
Standalone
Net Sales Rs. Mn 31,863 33,203 39,879 44,823 56,630
Sales Growth %age 7% 4% 20% 12% 26%
EBITDA Rs. Mn 3,348 3,556 4,578 5,630 6,321
EBITDAM% %age 11% 11% 11% 13% 11%
BOT Projects
Toll Collections Rs. Mn 8,795 12,497 15,790 18,330 18,129
EBITDA Rs. Mn 6,671 9,066 11,375 13,616 14,013
EBITDAM% %age 76% 73% 72% 74% 77%
Risk to Our View
Lower than expected order inflows in FY17, Lower EPC EBITDA Margins and fall in
Traffic/Toll incomes
Key Triggers
Order book growth, Early Completion of BOT Projects, Acquisition of BOT Projects,
Winning of a large MDO order
Sensitivity to Key Variables % Change % Impact on EPS
EBITDA Margins 1 % 12 %
Interest Rate 1 % -2 %
- - -
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.8 % 1.0 12.8 % 3.0 % 36.2 %
- FY18E FY19E FY20-22E FY23-27E FY28-32E
Sales Growth 22 % 13 % 11 % 5 % 3 %
NOPAT Margin 16 % 19 % 12 % 14 % 14 %
IC Turnover 0.36 0.38 0.52 0.86 1.21
RoIC 6.6 % 7.3 % 6.2 % 12.2 % 16.8 %
Years of strong growth 1 2 5 10 15
Valuation as on date (Rs) -158 2 -81 243 262
Valuation as of Jun'18 -180 2 -93 277 299
Based on DCF, assuming 15 years of 3% CAGR growth and 17% average ROIC, we derive
current fair value of Rs. 262 and Jun’18 fair value of Rs. 299.
Company Description:
Sadbhav is in the business of EPC Contracting for Cash Contracts, Mining, Irrigation and
BOT Road Projects. It has an order book of ~Rs. 77bn and its subsidiary SIPL has a
portfolio of 16 BOT Projects.It is one of the leading road BOT companies in India that
specializes in the development, operation and maintenance of highways, roads and
related projects.
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Sadbhav Engg LONG 314 53,976 382 30th Jun'18 11.0 13.6 19.4 28.7 23.0 16.2 96.8 2.9 12 % 13 % 17 % 0.2 % 0.6 %
Ashoka Buildcon LONG 195 36,475 268 31st Mar'18 6.2 3.7 10.3 31.6 56.9 18.9 99.9 2.1 7 % 4 % 10 % 0.8 % 0.9 %
PNC Infratech Reduce 144 37,134 134 30th Sep 18 4.6 5.6 6.0 31.3 25.6 23.9 57.0 2.3 8 % 9 % 9 % 1.7 % 0.4 %
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 8 of 13
Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18E 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 8,070 6,156 8,648 10,329 9,009 6,620 10,906 13,344 9,719 6,631 12,971 15,501 33,203 39,879 44,823 56,630
Construction Expenses 6,621 4,839 6,986 8,106 7,297 5,230 8,725 10,675 7,775 5,239 10,247 12,246 26,552 31,927 35,507 46,191
Employees Cost 315 353 319 379 353 381 358 424 395 412 400 475 1,366 1,516 1,683 1,915
Other Expenses 266 311 405 748 287 326 437 808 310 333 472 889 1,729 1,858 2,003 2,204
EBITDA 868 654 939 1,096 1,072 682 1,387 1,437 1,239 648 1,852 1,892 3,556 4,578 5,630 6,321
Depreciation 254 253 250 243 245 247 250 252 255 258 260 263 1,000 995 1,035 1,077
EBIT 614 400 689 854 827 435 1,137 1,184 984 390 1,592 1,629 2,556 3,583 4,595 5,243
Interest 172 221 243 355 350 319 285 251 202 144 108 80 992 1,206 533 288
Other Income 48 8 60 218 50 8 63 228 52 8 66 240 333 349 367 385
PBT 489 187 506 716 527 123 915 1,161 835 255 1,550 1,789 1,897 2,727 4,428 5,341
Tax 2 1 -19 33 53 12 91 232 209 64 387 447 18 389 1,107 1,335
Recurring PAT 487 185 525 683 475 111 823 929 626 191 1,162 1,342 1,879 2,338 3,321 4,006
Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Reported PAT 487 185 525 683 475 111 823 929 626 191 1,162 1,342 1,879 2,338 3,321 4,006
EPS (Rs) 2.84 1.08 3.06 3.98 2.77 0.65 4.80 5.42 3.65 1.11 6.78 7.82 10.96 13.63 19.37 23.36
Key Drivers
Cash Contract Revenues 4,493 4,244 6,482 6,500 2,970 3,600 5,220 5,400 2,673 3,240 4,698 4,860 21,718 17,190 15,471 13,924
BOT EPC Revenues 1,114 333 420 2,000 2,700 2,835 3,402 4,082 4,050 4,253 5,103 6,124 3,866 13,019 19,529 29,294
Mining EPC Revenue 723 659 1,002 800 831 757 1,152 920 956 871 1,325 1,058 3,183 3,661 4,210 4,841
Irrigation EPC Revenue 1,684 903 739 1,500 1,852 993 776 1,575 2,037 1,092 854 1,733 4,826 5,196 5,716 6,288
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue -6 % -24 % 40 % 19 % -13 % -27 % 65 % 22 % -27 % -32 % 96 % 20 % - - - -
(Increase) / Decrease in Work in progress
- - - - - - - - - - - - - - - -
EBITDA -4 % -25 % 44 % 17 % -2 % -36 % 103 % 4 % -14 % -48 % 186 % 2 % - - - -
EBIT 7 % -35 % 72 % 24 % -3 % -47 % 161 % 4 % -17 % -60 % 308 % 2 % - - - -
Recurring PAT 10 % -62 % 183 % 30 % -30 % -77 % 641 % 13 % -33 % -69 % 509 % 15 % - - - -
EPS 39 % -62 % 183 % 30 % -30 % -77 % 641 % 13 % -33 % -69 % 509 % 15 % - - - -
Yearly Growth (%)
Revenue -3 % -17 % 15 % 20 % 12 % 8 % 26 % 29 % 8 % 0 % 19 % 16 % 4 % 20 % 12 % 26 %
EBITDA -3 % -19 % 27 % 21 % 23 % 4 % 48 % 31 % 16 % -5 % 34 % 32 % 6 % 29 % 23 % 12 %
EBIT -11 % -32 % 32 % 49 % 35 % 9 % 65 % 39 % 19 % -10 % 40 % 38 % 8 % 40 % 28 % 14 %
Recurring PAT 23 % -53 % 94 % 55 % -3 % -40 % 57 % 36 % 32 % 72 % 41 % 44 % 24 % 24 % 42 % 21 %
EPS 23 % -33 % 84 % 95 % -3 % -40 % 57 % 36 % 32 % 72 % 41 % 44 % 42 % 24 % 42 % 21 %
Margin (%)
EBITDA 11 % 11 % 11 % 11 % 12 % 10 % 13 % 11 % 13 % 10 % 14 % 12 % 11 % 11 % 13 % 11 %
EBIT 8 % 7 % 8 % 8 % 9 % 7 % 10 % 9 % 10 % 6 % 12 % 11 % 8 % 9 % 10 % 9 %
PBT 6 % 3 % 6 % 7 % 6 % 2 % 8 % 9 % 9 % 4 % 12 % 12 % 6 % 7 % 10 % 9 %
PAT 6 % 3 % 6 % 7 % 5 % 2 % 8 % 7 % 6 % 3 % 9 % 9 % 6 % 6 % 7 % 7 %
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 9 of 13
Consolidated Financials Forecast P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 45,700 55,669 63,153 74,759 Equity Capital 172 172 172 172 PAT before MI -1,622 6,869 8,189 5,749
Op. Expenditure 33,078 36,342 40,222 50,306 Reserve 9,284 14,437 19,998 25,559 Depreciation 3,211 4,630 4,631 7,283
EBITDA 12,622 19,327 22,931 24,452 Networth 9,456 14,609 20,170 25,730 Others 0 0 0 0
Depreciation 3,211 4,630 4,631 7,283 Long Term Debt 95,041 90,125 95,966 95,572 Taxes Paid 94 1,365 1,631 1,762
EBIT 9,411 14,697 18,301 17,170 Def Tax Liability 16,501 18,959 28,685 31,970 Change in WC -7,213 738 4,505 -2,591
Interest Expense 11,874 8,603 6,993 7,887 Minority Interest 0 97 206 320 Operating C/F -5,718 10,872 15,693 8,678
Other Income 842 4,149 567 585 Account Payables 5,605 3,168 3,561 4,499 Capex -5,219 -33,952 -11,710 4,478
PBT -1,622 6,869 8,189 5,749 Other Curr Liabi 8,579 7,976 8,965 11,326 Change in Invest 0 0 0 0
Tax 94 1,365 1,631 1,762 Total Liabilities & Equity 135,182 134,933 157,552 169,418 Others 0 27,664 -13,292 -14,372
PAT bef. MI & Assoc. -1,716 5,504 6,557 3,987 Net Fixed Assets 99,379 113,029 145,660 158,914 Investing C/F -5,219 -6,289 -25,002 -9,894
Minority Interest -1,173 0 0 0 Capital WIP 0 0 0 0 Change in Debt 8,651 -4,917 5,841 -394
Profit from Assoc. 0 0 0 0 Others 9,901 -2,090 -14,351 -24,993 Change in Equity -1,160 0 0 2,775
Recurring PAT -543 5,504 6,557 3,987
Inventory 1,234 1,639 1,842 2,327 Others 3,433 2,204 8,839 2,198
Extraordinaires 0 0 0 0 Account Receivables 15,912 12,018 12,280 15,515 Financing C/F 10,924 -2,712 14,680 4,579
Reported PAT -543 5,504 6,557 3,987 Other Current Assets 7,441 7,151 3,562 5,733 Net change in cash -14 1,871 5,372 3,364
FDEPS (Rs) -3.2 32.1 38.2 23.2 Cash 1,316 3,187 8,558 11,922 RoE (%) -5 % 46 % 38 % 17 %
DPS (Rs) 0.7 1.7 5.0 6.0 Total Assets 135,182 134,933 157,552 169,419
RoIC (%) 6 % 9 % 8 % 6 %
CEPS (Rs) 8.7 59.1 65.2 65.7 Non-cash Working Capital 10,402 9,664 5,159 7,750
Core RoIC (%) 5 % 7 % 7 % 6 %
FCFPS (Rs) -18.1 59.8 -27.4 23.3 Cash Conv Cycle 83.1 63.4 29.8 37.8 Div Payout (%) -27 % 6 % 15 % 30 %
BVPS (Rs) 55.1 85.2 117.6 150.0 WC Turnover 4.4 5.8 12.2 9.6 P/E -99.1 9.8 8.2 13.5
EBITDAM (%) 28 % 35 % 36 % 33 % FA Turnover 0.5 0.5 0.4 0.5 P/B 5.7 3.7 2.7 2.1
PATM (%) -1 % 10 % 10 % 5 % Net D/E 9.9 6.0 4.3 3.3 P/FCFF -17.4 5.2 -11.5 13.5
Tax Rate (%) -6 % 20 % 20 % 31 % Revenue/Capital Employed 0.4 0.5 0.5 0.5 EV/EBITDA 13.0 8.3 7.4 6.9
Sales Growth (%) 12 % 22 % 13 % 18 %
Capital Employed/Equity 11.2 10.2 7.7 6.5
EV/Sales 3.6 2.9 2.7 2.3
FDEPS Growth (%) -63 % -1,113 % 19 % -39 %
Dividend Yield (%) 0.2 % 0.6 % 1.6 % 0.0 %
TTM P/E vs. 2 yrs. forward EPS growth TTM EV/EBITDA vs. 2 yrs. forward EBITDA growth TTM P/B vs. 2 yrs. forward RoE
21x
7x
14x
28x
35x
-40%
-20%
0%
20%
40%
60%
80%
100%
-200
-100
0
100
200
300
400
Jun/0
8
Dec/
08
Jun/0
9
Dec/
09
Jun/1
0
Dec/
10
Jun/1
1
Dec/
11
Jun/1
2
Dec/
12
Jun/1
3
Dec/
13
Jun/1
4
Dec
/14
Jun/1
5
Dec/
15
Jun/1
6
Dec/
16
Jun/1
7
Dec/
17
Jun/1
8
EPS Growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
Jun/
08
Dec
/08
Jun/
09
Dec
/09
Jun/
10
Dec
/10
Jun/
11
Dec
/11
Jun/
12
Dec
/12
Jun/
13
Dec
/13
Jun/
14
Dec
/14
Jun/
15
Dec
/15
Jun/
16
Dec
/16
Jun/
17
Dec
/17
Jun/
18
4x
8x
11x
14x
16xEBITDA Growth
0%
5%
10%
15%
20%
25%
30%
0
100
200
300
400
500
600
Jun/
08
Dec
/08
Jun/
09
Dec
/09
Jun/
10
Dec
/10
Jun/
11
Dec
/11
Jun/
12
Dec
/12
Jun/
13
Dec
/13
Jun/
14
Dec
/14
Jun/
15
Dec
/15
Jun/
16
Dec
/16
Jun/
17
Dec
/17
Jun/
18
RoE
1x
2x
3x
4x
5x
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 10 of 13
Historical Consolidated Financials P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 27,325 34,468 40,658 45,700 Equity Capital 151 172 172 172 PAT before MI 261 -2,325 -1,400 -1,622
Op. Expenditure 22,870 28,624 30,639 33,078 Reserve 12,579 15,201 11,132 9,284 Depreciation 1,305 2,235 2,326 3,211
EBITDA 4,456 5,844 10,019 12,622 Networth 12,730 15,372 11,304 9,456 Others 3,127 6,047 7,264 0
Depreciation 1,305 2,235 2,326 3,211 Long Term Debt 55,718 69,628 86,390 95,041 Taxes Paid -561 -679 -801 94
EBIT 3,151 3,609 7,693 9,411 Def Tax Liability 800 23,640 14,096 16,501 Change in WC 3,732 -1,427 483 -7,213
Interest Expense 4,555 6,150 10,752 11,874 Minority Interest 2,258 1,894 0 0 Operating C/F 7,864 3,850 7,872 -5,718
Other Income 306 442 651 842 Account Payables 3,880 4,728 3,907 5,605 Capex -12,042 -14,091 -17,309 -5,219
PBT 120 -882 -1,191 -405 Other Curr Liabi 3,322 4,068 8,500 8,579 Change in Invest -947 983 4 0
Tax -141 343 219 94 Total Liabilities & Equity 78,707 119,330 124,197 135,182 Others -1,420 -467 523 0
PAT bef. MI & Assoc. 261 -1,224 -1,409 -499 Net Fixed Assets 52,313 75,878 100,019 99,379 Investing C/F -14,409 -13,575 -16,783 -5,219
Minority Interest -181 -592 -1,173 -1,173 Capital WIP 7,754 20,100 0 0 Change in Debt 11,454 13,646 8,278 8,651
Profit from Assoc. 2 -22 0 0 Others 3,399 3,999 7,253 9,901 Change in Equity 268 3,153 2 -1,160
Recurring PAT 444 -654 -237 674 Inventory 1,638 2,134 1,410 1,234 Others -4,661 -6,431 -182 3,433
Extraordinaires -1,217 -117 -422 0 Account Receivables 5,758 6,839 8,086 15,912 Financing C/F 7,060 10,368 8,098 10,924
Reported PAT 444 -654 -237 674 Other Current Assets 5,538 8,285 6,100 7,441 Net change in cash 516 644 -813 -14
EPS (Rs) -4.5 -10.9 -8.5 -3.2 Cash 2,309 2,095 1,329 1,316
RoE (%) -6 % -13 % -11 % -5 %
DPS (Rs) 0.7 0.7 0.7 0.7
Total Assets 78,707 119,330 124,197 135,182
RoIC (%) 5 % 3 % 5 % 6 %
CEPS (Rs) 2.0 -1.2 -1.8 8.7 Non-cash Working Capital 5,732 8,463 3,189 10,402 Core RoIC (%) 3 % 1 % 4 % 5 %
FCFPS (Rs) -17.1 -16.7 16.4 -18.1 Cash Conv Cycle 76.6 89.6 28.6 83.1 Div Payout (%) 29 % -8 % -14 % -27 %
BVPS (Rs) 74.2 89.6 65.9 55.1 WC Turnover 4.8 4.1 12.7 4.4
P/E -100.7 -69.6 -28.8 -37.0
EBITDAM (%) 16 % 17 % 25 % 28 % FA Turnover 0.5 0.4 0.4 0.5 P/B 4.4 4.2 3.5 4.8
PATM (%) 2 % -5 % -3 % -1 % Net D/E 4.2 4.4 7.5 9.9 P/FCFF -18.4 -18.8 19.1 -17.4
Tax Rate (%) 13 % -16 % -9 % -6 % Revenue/Capital Employed 0.5 0.5 0.4 0.4 EV/EBITDA 25.4 24.5 28.9 16.7
Sales growth (%) 27 % 26 % 18 % 12 %
Capital Employed/Equity 5.2 6.5 8.3 11.2
EV/Sales 4.1 4.1 7.1 4.6
FDEPS growth (%) 45 % 142 % -22 % -63 %
Dividend Yield (%) 0.2 % 0.2 % 0.2 % 0.2 %
Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 11 of 13
Equirus Securities
Research Analysts Sector/Industry Email
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Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631
Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634
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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
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Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 12 of 13
© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited
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I, Devam Modi, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also
certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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Sadbhav Engineering Absolute – LONG Relative: Overweight 20% ATR in 13 months
______________________________________________________________________________________________________________________________________ May 30, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 13 of 13
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“three years” period in the price chart).
Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
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