Sadbhav Engineering - 2QFY2016 Result Update - Angel Broking

Sadbhav Engineering (SEL) reported a strong set of numbers for 2QFY2016. On the top-line front, SEL reported a strong 25.4% yoy growth to Rs. 746cr in 2QFY2016. This was mainly on account of execution of in-house BOT projects (mainly Rohtak-Hissar project, which contributed ~Rs. 190cr) and lower base of the corresponding period of last year. The company posted an EBITDA margin of 10.8%, up 80bp yoy. Interest cost declined by 20.4% yoy to Rs. 18cr. On the bottom-line front, the company's reported PAT grew 158.4% yoy to Rs. 26cr. On adjusting for an exceptional item, the Adj. PAT grew 274.7% yoy to Rs. 38cr.

SEL reported order inflow of Rs. 1,608cr during the quarter, taking the total inflows won during 1HFY2016 to Rs. 2,684cr. SEL is sitting on an order book of Rs. 9,306cr (Order Book to LTM ratio at 2.9x) as of 2QFY2016, which provides good revenue visibility.

Outlook and valuation: Considering recent order wins and strong 1HFY2016 execution, we model revenue estimates of Rs. 3,481cr/Rs. 4,219cr for FY2016E/FY2017E, respectively. Given the low competitive intensity for recently won Road EPC projects, cool-down in bitumen and aggregate prices (as captive BOT projects have fixed price contracts), we expect EBITDA margins to expand by 53bp during FY2015-17E to 10.8%. Further, we model conservative other income numbers and low tax rate for FY2016/2017E at Rs. 13/14cr and 24%, respectively.

Accordingly, we expect SEL's PAT margin to expand by 109bp during FY2015-17E to 5.1%. We value SEL using Sum-Of-The-Parts methodology. We value standalone entity on P/E multiple of 15.0x its FY2017E EPS of Rs. 12.4cr, resulting in value of Rs. 187 per share. We value BOT projects individually using Free Cash flow to Equity holder's method. Our value for SIPL's portfolio of BOT projects comes to Rs. 141/share, which is 43% of the overall SOTP value for the company. On combining the value of EPC business and BOT projects, we arrive at a combined business value of Rs. 328/share, reflecting limited upside in the stock price from current levels. Accordingly, we maintain Neutral rating on the stock.

Shares of SADBHAV ENGINEERING LTD. was last trading in BSE at Rs.312.2 as compared to the previous close of Rs. 311.4. The total number of shares traded during the day was 7205 in over 397 trades.

The stock hit an intraday high of Rs. 319 and intraday low of 295.1. The net turnover during the day was Rs. 2193915.

Source : Equity Bulls

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