Sadbhav Engineering - Fundamental Call - Consortium

Sadbhav Engineering' (SEL) Q3FY13 results were disappointing on account of a delay in clearance in new projects leading to lower than expected topline and bottomline. With most clearances expected in H1FY14 and a strong order book of Rs 8747 crore implying a book to bill ratio of 4.3x, we expect execution to pick up from FY14 onwards. During Q3FY13, SEL also emerged as the successful bidder for a BOT annuity project in Karnataka worth Rs 730 crore. In terms of equity requirement for BOT projects, SIPL requires further Rs 890 crore over the next three to four years, which it intends to fund through securitisation of projects, use of debt service reserve of few projects and internal accruals.

Delay in getting clearances leads to poor Q3FY13: SEL reported a lower topline of Rs 353.4 crore in Q3FY13 on account of a delay in clearance in new projects such as the Solapur Bijapur and Udaipur Gomati ka Chauraha. The EBITDA margin at 9.4% was largely in line with estimate of 9.5%. The PAT, consequently, was at Rs 3.7 crore vs. lower on account of lower topline and margins.

BOT project update: i) SIL emerged as the successful bidder for BOT annuity project in Karnataka (project cost - Rs 730 crore; concession period - 10 years and grant - Rs 239.1 crore, semi-annuity of Rs 71.1 crore). ii) SIPL requires further equity infusion (including newly won projects) of Rs 890 crore over the next ~three to four years. Further, it highlighted it would require equity investment of Rs 120 crore in Q4FY14E. To fund the same, it intends to use proceeds from securitisation of Nagpur Seoni & Ahmedabad Ring Road (~Rs 380 crore), use of debt service reserve of four projects namely Bijapur-Hungund, Rohtak-Panipat, Maharashtra Border Check Post and Hyderabad-Yadgiri (~Rs 200-225 crore) along with internal accruals.

Execution to improve in FY14; negatives priced in: While execution in FY13 remained muted due to delays in new project clearances, we believe it should pick up in FY14 given these clearances are coming in coupled with a strong order backlog. Furthermore, the delay in the project approval and execution is already priced in the current. Hence, we assign a BUY rating with an SoTP price target of Rs 135/share.

Source : Equity Bulls

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