Sadbhav Infrastructure Project - 2QFY2016 Result Update - Angel Broking

For 1HFY2016, Sadbhav Infrastructure Project Ltd (SIPL) reported a consol. top-line of Rs. 274cr (vs Rs. 500cr in FY2015). The Reported top-line (for 1HFY2016), on a yoy basis benefitted from (1) 16.2% toll income growth across Hyderabad-Yadagiri project, (2) 69.2% gross toll income growth across Maharashtra Border Check Post project (as 4 new check posts commenced operations in 2QFY2016; 18% toll hike seen during the quarter), and (3) 11.1% toll income growth seen across the Ahmadabad Ring Road project. The Reported EBITDA for 1HFY2016 stood at Rs. 180cr while the EBITDA margin for the same period was at 65.7% (vs 61.7% for FY2015). Higher interest expenses (Rs. 284cr for 1HFY2016 vs Rs. 526cr for FY2015) led to losses for SIPL of Rs. 159cr for 1HFY2016.

Outlook and valuation: We expect SIPL to report a strong 44.3%/47.8% revenue/EBITDA CAGR over FY2015-17E. Management expects SIPL's entire BOT portfolio (we model MBHPL to commission operations in FY2018E only) to be operational by FY2017E only. Toll collection at its existing projects would further ramp-up, going forward. Interest expenses accounted for 170% of the FY2015 consol. EBITDA. We expect this ratio to decline to ~95% by FY2017E.

PAT level losses since FY2013 have eroded overall net worth of consol. entity from Rs. 971cr in FY2013 to Rs. 788cr in FY2015. Despite uptick in traffic numbers across its road portfolio, there exists a possibility of the company continuing to report losses for next few quarters, as it would be impacted by 3 new projects commencing operations in next few months, as highlighted by the Management.

Our view that SIPL would continue to report losses stems from the point that peak debt requirement of the company (assuming no projects are added/ acquired) would be at Rs. 8,510cr by FY2017E. The incremental debt requirement would be towards new projects and stake acquisition of DPTL and MBHPL projects.

SIPL, at consol. level, should report cash level profits from 4QFY2016E onwards. We have valued SIPL using Sum-of-The-Parts method, where we have valued each project using "Free Cashflow to Equityholders" method and adjusted standalone entity's FY2016E debt to arrive at a fair value of Rs. 100/share. Given the limited upside potential from the current levels, we maintain our NEUTRAL rating on the stock.

Source : Equity Bulls

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