Professional Documents
Culture Documents
Driving in the right lane
February 14, 2018 Sadbhav Engineering reported PAT of Rs618mn up ~18% YoY, above our estimates.
The beat was led by better margin, lower operating costs and higher other income.
Q3FY18 Result Update
Kunal Sheth Better mix led to margin beat (value accretive work in EPC contracts and
kunalsheth@plindia.com
contribution from higher margin HAM projects). SEL maintained guidance of 17‐
+91‐22‐66322257
20% sales growth, margin of 11‐11.5% and order inflow of ~Rs70bn for FY18 (till
Shreyans Jain date inflow of Rs44.3bn). For FY19 they are targeting inflow of Rs80bn. The outlook
shreyansjain@plindia.com on road sector continues to be healthy with tenders worth ~Rs1.5tn up for bidding
+91‐22‐66322256
over next 2‐3 months. The pipeline in irrigation and mining also continues to be
Rating BUY robust with tenders worth Rs42bn up for bidding over next 2‐3 months. SEL
Price Rs396 continues to focus on deleveraging (Debt reduced by Rs3.5bn in 9MFY18 to
Target Price Rs475 Rs14.5bn). They expect a further reduction in debt by Rs2bn by year end. We
Implied Upside 19.9% continue to believe SEL will be the key beneficiary of strong outlook in road sector
Sensex 34,156 and improving outlook in Mining and Irrigation sector. We expect company to
Nifty 10,501 deliver 22% earning CAGR over FY16‐20E and maintain our “BUY” With revised TP
(Prices as on February 14, 2018) of Rs475
Road sector drives execution: Sadbhav Engineering reported sales of Rs9.35bn,
Trading data
up 8.1% YoY (PLe:Rs9.95bn). Revenue from Roads were up 15% YoY led by
Market Cap. (Rs bn) 59.4
significant uptick in BOT projects (up 505% YoY). Revenue from Mining and
Shares o/s (m) 150.0
3M Avg. Daily value (Rs m) 150.2
Irrigation were down ~16% and ~26% YoY. EBITDA was up 12.6% YoY at
Major shareholders Rs1.05bn (PLe: Rs1.09bn), while EBITDA margins were up 50bps to 11.3%. Better
Promoters 46.76% mix led to margin beat (value accretive work in EPC contract and contribution
Foreign 16.56% from higher margin HAM projects). Interest cost increased 17% YoY to Rs285m.
Domestic Inst. 25.54% PAT was up by 18% YoY to Rs618m (PLe Rs575m).
Public & Other 11.14%
Stock Performance Contd...2
(%) 1M 6M 12M
Absolute (4.8) 45.0 40.1
Key financials (Y/e March) 2017 2018E 2019E 2020E
Relative (3.6) 35.6 19.6
Revenues (Rs m) 33,203 37,555 43,516 50,436
How we differ from Consensus
Growth (%) 4.2 13.1 15.9 15.9
EPS (Rs) PL Cons. % Diff.
EBITDA (Rs m) 3,556 4,195 4,983 5,765
2019 15.3 14.5 5.6
PAT (Rs m) 1,878 2,287 2,601 2,811
2020 16.6 16.8 ‐1.4
EPS (Rs) 11.1 13.5 15.3 16.6
Growth (%) 43.9 21.7 13.8 8.1
Price Performance (RIC: SADE.BO, BB: SADE IN) Net DPS (Rs) 0.7 0.7 0.7 0.7
(Rs)
500 Profitability & Valuation 2017 2018E 2019E 2020E
400 EBITDA margin (%) 10.7 11.2 11.5 11.4
RoE (%) 12.0 12.9 13.0 12.5
300
RoCE (%) 8.9 9.7 10.6 10.5
200 EV / sales (x) 2.5 2.1 1.8 1.6
100 EV / EBITDA (x) 23.1 18.4 15.6 13.6
0 PE (x) 35.8 29.4 25.8 23.9
Feb‐17
Feb‐18
Dec‐17
Jun‐17
Aug‐17
Oct‐17
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Sadbhav Engineering
Strong order pipline: Order book at the end of Q3FY18 stood at Rs96.4bn, up
25% YoY. Order Inflows during the quarter stood at Rs25.5bn. SEL is L1 in
projects worth Rs1.67bn. Bid pipeline in roads are, a) 3 EPC projects worth
Rs26bn where bids submitted which are yet to be opened b) 36 EPC projects
worth Rs350bn where bids to be submitted by March’18. C) 13 packages from
Maharashtra for Nagpur expressway worth Rs210bn d) 89 HAM projects worth
Rs900 bn bids to be submitted by March’18. Bid pipeline in irrigation‐ Bids
worth Rs102bn from states like MP/Rajasthan/ Karnataka) to be submitted in
the next 2‐3 months. SEL expects to bag orders worth Rs70bn in FY18 and
~Rs80bn in FY19
Other conference call highlights: 1) Capex in FY18 Rs650mn, expected capex in
FY19 is ~Rs850mn. 2) Expect Debt to reduce by ~Rs‐2bn by end FY18 (led by
expected receipt of mobilization advance of Rs1.3bn from 2 HAM projects and
Rs1.5‐2bn from Mysore‐Bellary project) 3) L&A outstanding with SIPL is
~Rs4.4bn. 4) Competitive intensity in metro projects very high. 5) Sadbhav
Engineering qualified for all 13 packages of Nagpur expressway tenders.
Outlook and valuation: The stock is trading at core PE of 15x FY20E earnings.
We continue to believe SEL will be the key beneficiary of strong outlook in road
sector and improving outlook in Mining and Irrigation sector notwithstanding
the underperformance that it had in the short term. Focus on balance sheet
improvement and pick up in execution will be key trigger going forward. We
continue to rate the stock a “BUY” With revised TP of Rs475
Exhibit 1: SOTP
Particulars Method Multiple Value (Rs m) Per Share Value
Construction business PER 18x Mar '20 56,223 332
BOT (69%) NPV Ke 14% FY18 NPV 24,346 144
Total 80,570 475
Source: PL Research
February 14, 2018 2
Sadbhav Engineering
Exhibit 2: NPV Snapshot
SIPL
Particulars Stake NPV Per share value
valuation
Ahmedabad Ring road 100 4,520 4,520 26.7
Aurangabad Jalna 100 2,887 2,887 17.0
Nagpur Seoni 100 378 378 2.2
Dhule Maharashtra 40 5,437 5,437 32.1
Bijapur Hungud 77 7,996 6,157 36.3
Hyderabad Yadgiri 100 2,138 2,138 12.6
Rohtak Panipat 100 1,901 1,901 11.2
Mumbai Nashik 20 7,025 1,405 8.3
Maharashtra Checkpost 90 10,061 7,847 46.3
Shreenathji Udaipur 100 4,247 4,247 25.0
Rajshamand Bhilwara 100 3,063 3,063 18.1
Rohtak Hisar Tollway Private 100 2,225 2,225 13.1
Karnataka State Highway 100 950 950 5.6
Total 52,829 43,156 254
Source: PL Research
Exhibit 3: Q3FY18 Result Overview (Rs m)
Y/e March Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 9MFY18 9MFY17 YoY gr. (%)
Net Sales 9,351 8,648 8.1 6,931 25,725 22,874 12.5
Expenditure
Construction Expenses 7,734 6,986 10.7 5,550 20,720 18,446 12.3
% of Net Sales 82.7 80.8 80.1 80.5 80.6
Personnel Cost 376 319 17.8 317 1,002 987 1.5
% of Net Sales 4.0 3.7 4.6 3.9 4.3
Others 184 405 (54.4) 277 1,092 981 11.3
% of Net Sales 2.0 4.7 4.0 4.2 4.3
Total Expenditure 8,295 7,710 7.6 6,143 22,814 20,414 11.8
EBITDA 1,056 938 12.6 788 2,911 2,460 18.3
Margin (%) 11.3 10.8 11.4 11.3 10.8
Other income 74 60 23.1 5 118 115 2.7
Depreciation 247 250 (1.3) 251 743 758 (1.9)
EBIT 883 748 18.0 542 2,287 1,818 25.8
Interest 285 243 17.3 215 822 637 29.1
Exceptional item ‐ ‐ ‐ ‐ ‐
PBT 598 505 18.4 327 1,465 1,181 24.0
Total Taxes (20) (19) NA (8) (43) (15) 188.2
PAT 618 524 17.9 335 1,508 1,196 26.1
Other Comprehensive income ‐ ‐ ‐ ‐ ‐
Total Comprehensive income 618 524 17.9 335 1,508 1,196 26.1
Source: Company Data, PL Research
February 14, 2018 3
Sadbhav Engineering
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e March 2017 2018E
2019E 2020E Y/e March 2017 2018E 2019E 2020E
Net Revenue 33,203 37,555 43,516 50,436 Shareholder's Funds 16,609 18,757 21,220 23,893
Raw Material Expenses — — — — Total Debt 15,183 11,683 12,383 12,383
Gross Profit 33,203 37,555 43,516 50,436 Other Liabilities (477) (477) (477) (477)
Employee Cost 1,366 976 1,129 1,307 Total Liabilities 31,315 29,964 33,127 35,799
Other Expenses 28,281 32,385 37,404 43,365 Net Fixed Assets 5,229 4,602 4,184 3,622
EBITDA 3,556 4,195 4,983 5,765 Goodwill — — — —
Depr. & Amortization 1,000 1,127 1,218 1,362 Investments 5,694 6,194 6,694 7,194
Net Interest 992 1,075 1,182 1,300 Net Current Assets 20,393 19,168 22,249 24,983
Other Income 333 340 374 411 Cash & Equivalents 230 1,606 1,864 1,367
Profit before Tax 1,897 2,333 2,956 3,514 Other Current Assets 28,574 30,867 35,766 41,455
Total Tax 18 47 355 703 Current Liabilities 8,411 13,305 15,381 17,838
Profit after Tax 1,878 2,287 2,601 2,811 Other Assets — — — —
Ex‐Od items / Min. Int. — — — — Total Assets 31,316 29,964 33,127 35,799
Adj. PAT 1,878 2,287 2,601 2,811
Avg. Shares O/S (m) 169.6 169.6 169.6 169.6
EPS (Rs.) 11.1 13.5 15.3 16.6
Cash Flow Abstract (Rs m) Quarterly Financials (Rs m)
Y/e March 2017 2018E 2019E 2020E Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18
C/F from Operations (1,953) 7,089 2,179 2,242 Net Revenue 10,329 9,444 6,931 9,351
C/F from Investing (1,095) (1,000) (1,300) (1,300) EBITDA 1,096 1,068 788 1,056
C/F from Financing 3,463 (4,713) (621) (1,439) % of revenue 10.6 11.3 11.4 11.3
Inc. / Dec. in Cash 415 1,376 258 (496) Depr. & Amortization 243 245 251 247
Opening Cash 366 230 1,606 1,864 Net Interest 355 322 215 285
Closing Cash 782 1,606 1,864 1,367 Other Income 218 39 5 74
FCFF (3,624) 5,514 196 142 Profit before Tax 716 540 327 598
FCFE 972 2,014 896 142 Total Tax 33 (15) (8) (20)
Profit after Tax 682 555 335 618
Adj. PAT 682 555 335 618
Source: Company Data, PL Research.
Key Financial Metrics
Y/e March 2017 2018E 2019E 2020E
Growth
Revenue (%) 4.2 13.1 15.9 15.9
EBITDA (%) 6.2 18.0 18.8 15.7
PAT (%) 42.3 21.7 13.8 8.1
EPS (%) 43.9 21.7 13.8 8.1
Profitability
EBITDA Margin (%) 10.7 11.2 11.5 11.4
PAT Margin (%) 5.7 6.1 6.0 5.6
RoCE (%) 8.9 9.7 10.6 10.5
RoE (%) 12.0 12.9 13.0 12.5
Balance Sheet
Net Debt : Equity 0.9 0.5 0.5 0.5
Net Wrkng Cap. (days) — — — —
Valuation
PER (x) 35.8 29.4 25.8 23.9
P / B (x) 4.0 3.6 3.2 2.8
EV / EBITDA (x) 23.1 18.4 15.6 13.6
EV / Sales (x) 2.5 2.1 1.8 1.6
Earnings Quality
Eff. Tax Rate 1.0 2.0 12.0 20.0
Other Inc / PBT 17.5 14.6 12.7 11.7
Eff. Depr. Rate (%) 9.7 10.4 10.5 11.0
FCFE / PAT 51.7 88.1 34.5 5.1
Source: Company Data, PL Research.
February 14, 2018 4
Sadbhav Engineering
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
Reduce : Underperformance to Sensex over 12‐months
30% Sell : Over 15% underperformance to Sensex over 12‐months
20% Trading Buy : Over 10% absolute upside in 1‐month
12.4%
10% Trading Sell : Over 10% absolute decline in 1‐month
0.0% Not Rated (NR) : No specific call on the stock
0%
BUY Accumulate Reduce Sell Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Kunal Sheth (MBA), Mr. Shreyans Jain (CA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a
subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third
party financial/other products, details in respect of which are available at www.plindia.com
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to
others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its
affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend
upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies
referred to in this report and they may have used the research material prior to publication.
PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.
PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.
PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of
publication of the research report.
PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.
PL or its associates might have received compensation from the subject company in the past twelve months.
PL or its associates might have managed or co‐managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve
months.
PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months
PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.
PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject
Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.
It is confirmed that Mr. Kunal Sheth (MBA), Mr. Shreyans Jain (CA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his
or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company
Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein,
and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o
the foregoing, among other things, may give rise to real or potential conflicts of interest.
PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving
such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any
other potential conflict of interests with respect to any recommendation and other related information and opinions.
DISCLAIMER/DISCLOSURES (FOR US CLIENTS)
ANALYST CERTIFICATION
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal
views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report
Terms & conditions and other disclosures:
This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are
resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to
satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and
trading securities held by a research analyst account.
This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and
interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon
this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas
Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.
February 14, 2018 SREESANKAR
Digitally signed by SREESANKAR RADHAKRISHNAN
DN: c=IN, o=Personal , CID - 5881668,
2.5.4.20=d574f7722fdeee24c535d598f047d65aa6618ccdab8ef8e8
44973412c3bebd70, postalCode=400104, st=Maharashtra,
5
RADHAKRISHNAN serialNumber=8859da2df03122989b585ad520865a4f59be69fbc1b
7ba2c5315941f987f41de, cn=SREESANKAR RADHAKRISHNAN
Date: 2018.02.14 19:36:13 +05'30'