BUY on Sadbhav Engineering - Inline performance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

Sadbhav Engineering (SEL) reported revenue at Rs 2.3bn, decline of 73%/44% YoY/QoQ. Consequently, losses came in at Rs 266mn, against our estimated loss of Rs 212mn. Labour availability has improved to 80%. Standalone order book stood at Rs 82bn. Although, SEL could not secure any order in 1QY21, it has already won orders of Rs 16bn 2QFY21. Net debt reduced marginally to Rs 10.6bn (vs 11.2bn at FY20-end). However, with receivables of ~Rs 18bn, working capital still remains stretched. We maintain BUY on SEL, with an unchanged target price of Rs 62, given low valuation. Improvement in balance sheet and pick-up in execution will lead to re-rating.

Miss on execution: SEL reported revenue at Rs 2.3bn during the quarter (73%/44% QoQ/YoY), missing our estimate by 15%. However, EBITDA beat our estimate by 18% on better than expected margin. Consequently, loss for the quarter came in at Rs 266mn, against our estimated loss of Rs 212mn.

Execution to normalize by Oct'20: Labor availability has improved to 80% currently and is expected to normalize by Oct'20. Besides, execution on all sites have started. With improvement of labour availability and commencement of work on three large EPC project (combined value of Rs 37bn), management expect to close in on target of Rs 100mn/day execution from Oct-20. The company expects to achieve Rs 4bn of topline in 2QFY21 and PCOD on six HAM projects in FY21.

Order book at Rs 82bn; Rs 45-50bn inflow guidance for FY21: Standalone order book stood at Rs 82bn at the end of the 1QFY21 (including L1 of Rs 16bn, OB is Rs 98bn). SEL could not secure any orders in 1QFY21 but it has already won two EPC contract in 2QFY21 with combined value of Rs 16bn. Cumulatively, management is targeting Rs 45-50bn of orders in FY21. In that direction, the company has submitted bids for two road projects, valued at Rs 17bn, and a bid for a metro project of Rs 4.7bn in Ahmedabad. Besides, management is working on nine bids and will submit same in due time.

Stretched working capital weighing on the balance sheet: Including the loans (Rs 3.5bn) given to SIPL, standalone net debt stood at Rs 10.6bn (vs Rs 11.2bn at FY20-end). Cash on hand stood at Rs 1bn. Although receivables reduced by Rs 1.4bn, it still remains elevated at Rs 18bn. Potential realization of arbitration awards (~Rs 2.2bn), GST refunds (~Rs 1bn), SPV debtors (~Rs 3.2bn) disbursals by bank, irrigation debtors payments (Rs 2bn), HAM escalation charges (~Rs 2.2bn); and proceeds from transfer of Ahmedabad Ring Road project to Indinfravit could help reduce stress on balance sheet.

Shares of SADBHAV ENGINEERING LTD. was last trading in BSE at Rs.52.3 as compared to the previous close of Rs. 49.85. The total number of shares traded during the day was 138904 in over 758 trades.

The stock hit an intraday high of Rs. 52.3 and intraday low of 47.45. The net turnover during the day was Rs. 7136590.

Source : Equity Bulls

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