Maintain BUY on Sadbhav Engineering - HDFC Securities

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

Sadbhav Engineering (SEL) reported revenue/EBITDA/PAT miss of 29/19/61%. Labour availability has normalised. Standalone order book stood at Rs 97bn as it won orders of Rs 7.8bn in 3QFY21. Net debt remained at Rs ~11bn. However, with receivables of ~Rs 17bn, working capital still remains stretched. Improvement in balance sheet and pick-up in execution will lead to rerating. With Rs 7.5bn of NCD inflow, liquidity issues will get alleviated and execution will pick up. We maintain BUY with TP of Rs 105/sh.

Execution recovery weaker than expected: Revenue stood at Rs 5.6bn (+26/+35% YoY/QoQ, 29% miss). EBITDA: Rs 737mn (+34/+48% YoY/QoQ, 19% miss). RPAT stood at Rs 152mn (+30/+189% YoY/QoQ, 61% miss). SEL is targeting about Rs 6-6.5bn of topline for 4QFY21. SEL-SIPL merger approvals have been received from shareholders and creditors. PCOD for 3 HAMs have been received, with PCOD for 2 more HAMs expected in 4QFY21E, and another 2 projects by 2QFY22E. Hence, 7 out of 9 HAMs are expected to receive PCOD by 2QFY22. Execution is expected to stabilise to Rs 90mn daily run-rate by 4QFY21.

SIPL debt position: Debt of operational SPVs under SEL-SIPL stood at Rs 29.4bn (including ARRIL), while under-construction SPVs' debt stood at Rs 21.9bn. SIPL standalone debt stood at Rs 7.8bn, including Rs 3.9bn loan from SEL. Rs 7.5bn equity has been infused until date, with balance Rs 3.3bn to be infused over two months from Rs 7.5bn NCDs to be issued at SEL. The balance NCD proceeds will be utilised for repaying SIPL debt. ARRIL proceeds will be utilised to repay NCDs. Hence, with ramping up of operations further, SEL debt is expected to remain at broadly the current level of Rs 11bn.

Order book at Rs 96.8bn; Rs 45-50bn inflow guidance for FY21: Standalone order book stood at Rs 97bn at the end of the 3QFY21. SEL won one EPC contract (Surat Metro) in 3QFY21 amounting to Rs 7.8bn. Cumulatively, SEL is targeting Rs 45-50bn of orders in FY21, implying Rs 22-27bn incremental inflows. In that direction, the company has submitted 15 bids for a total value of Rs ~134bn for various road projects.

Shares of SADBHAV ENGINEERING LTD. was last trading in BSE at Rs.77.85 as compared to the previous close of Rs. 79.85. The total number of shares traded during the day was 228491 in over 1342 trades.

The stock hit an intraday high of Rs. 83 and intraday low of 76.45. The net turnover during the day was Rs. 18041643.

Source : Equity Bulls

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