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November 1, 2011
Sadbhav Engineering
Performance Highlights
Y/E March (` cr) Net sales Operating profit Net profit
Source: Company, Angel Research
BUY
CMP Target Price
% chg (yoy) 65.0 44.1 32.1 1QFY12 612.9 67.8 33.8 % chg (qoq) (29.8) (33.2) (46.3)
`131 `165
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (` ) BSE Sensex Nifty Reuters Code Bloomberg Code
For 2QFY2012, Sadbhav Engineerings (SEL) numbers came in ahead of our and street expectations. Order inflow for the quarter was at dismal `101cr as expected, but order book remains healthy at `6,259cr (2.8x FY2011 revenues). We believe SEL has performed better than its peers on the bourses and would continue to do so owing to 1) consistent quarterly growth on the earnings front unlike its peers which are marred by various headwinds; 2) better management of its finances with one of lowest leveraged balance sheet (standalone) despite a healthy portfolio of BOT assets; and 3) robust order book which lends revenue visibility. Hence, we maintain our Buy rating on the stock and as our top pick. Strong quarterly performance: SEL reported strong 65.0% yoy growth on the top-line front to `430.4cr (`260.9cr) vs. our estimate of 48.0% growth. SEL has been able to maintain a sturdy execution pace for captive road BOT projects since the last few quarters, leading to robust revenue growth. On the margin front, the company posted EBITDAM of 10.5% (12.0%), below our estimate of 11.3% mainly due to commodity price pressures. Interest cost stood at `15.4cr (`9.0cr), registering a jump of 70.9% yoy/22.5% qoq on account of rising interest rates. On the earnings front, SEL reported 32.1% growth yoy to `18.1cr (`13.7cr), higher than our expectation of `16.9cr on account of higher top-line growth. Outlook and valuation: SELs management expects the current intense competition to subside in couple of quarters, however denting the order inflow target for the fiscal. We believe that given SELs strong execution capabilities, healthy balance sheet, increasing opportunities on road front and expected rationality in bidding process would ensure consistent order inflows for company in FY2013 and hence investors should not be wary of slowdown on order inflow front on quarterly basis. Our SOTP-based target price works out to `165/share, implying a 25.7% upside from current levels, based on a target P/E multiple of 9x to its FY2013E earnings and valuing its BOT arm on DCF basis. Thus, we maintain our Buy view on the stock and as one of our top picks in the sector. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Adj. net profit % chg EBITDA (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 47.6 26.9 23.1 2.5
3m (7.1)
1yr
3yr 69.1
(4.6) (14.1)
(9.3) 197.2
FY2010 1,257 17.0 53.8 (28.6) 11.0 3.6 36.5 5.0 14.7 16.4 1.9 17.1
FY2011 2,209 75.8 119.6 122.1 10.2 8.0 16.5 3.1 23.5 21.3 1.0 10.1
FY2012E 2,602 17.8 137.0 14.5 10.4 9.1 14.4 2.6 19.7 20.4 0.9 9.0
FY2013E 2,768 6.4 147.5 7.7 10.6 9.8 13.3 2.1 17.1 19.0 0.8 7.8
Shailesh Kanani
022-39357800 Ext: 6829 shailesh.kanani@angelbroking.com
Nitin Arora
022-39357800 Ext: 6842 nitin.arora@angelbroking.com
2QFY12 430.4 385.1 45.3 10.5 15.4 7.0 5.2 28.1 10.0 18.1 4.2 1.2
2QFY11 260.9 229.5 31.4 12.0 9.0 6.7 5.1 20.8 7.1 13.7 5.3 0.9
% chg (yoy) 65.0 67.8 44.1 (150)bp 70.9 5.4 3.5 35.1 40.8 32.1 (110)bp 32.1
1QFY12 612.9 545.1 67.8 11.1 12.6 6.9 1.6 49.9 16.1 33.8 5.5 2.3
% chg (qoq) (29.8) (29.3) (33.2) (60)bp 22.5 1.0 226.9 (43.6) (38.0) (46.3) (130)bp (46.3)
1HFY12 1,043.3 930.2 113.1 10.8 28.0 13.9 6.8 78.0 26.0 51.9 5.0 3.5
1HFY11 686.2 604.2 82.1 12.0 20.5 13.1 10.7 59.1 19.9 39.2 5.7 2.6
% chg 52.0 54.0 37.8 (120)bp 36.4 6.3 (35.9) 32.0 31.0 32.5 (70)bp 32.5
November 1, 2011
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2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
Irrigation
Projects update
Nagpur Seoni project: This project would be restricted only to the completed 28km, as NHAI has not been able to acquire the balance land portion of 28km (total project length 56km). Hence, there would be no more equity infusion from SEL. As far as annuity payment is concerned, SEL received `28cr in FY2011 (operational for 10 months) and is expecting to receive ~`36cr (original annuity payment ~`70.8cr) as annuity payment in FY2012. Mumbai Nasik project: The company has started tolling on the balance 36km of the project, and currently toll revenue is around `31lakhs/day but for the full year, SEL is confident of achieving `34-35lakhs/day. Maharashtra border check post project: SEL has possession of 15 check posts, out of the total 22 check posts; and possession of additional four check posts is expected by December 2011. SEL expects to commission the first check post by January 2012, five by March 2012 and nine by June 2012. In terms of revenue, 12 check posts are expected to contribute `150cr-160cr to revenue (70% of the total revenue from this project). Chhindwara project (Cash contract): SEL started work on this project from November 1, 2011, with 90% of mobilization completed. SEL is expecting a 10% mobilization advance (interest free) and 5% equipment advance (interest 10%).
155.9 10-May-12
Source: Company, Angel Research, Note: * 75% completion expected by management which will lead to early COD
November 1, 2011
lower PATM
8.0 7.0 6.0 4.2 5.0 4.0 3.0 2.0 1.0 -
9.3
2.0
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
November 1, 2011
2QFY12
FY2013E Variation (%) 60bp (0.8) Earlier Estimates 2,865 10.4 150.6 Revised Estimates 2,768 10.6 147.5 Variation (%) (3.4) 20bp (2.1) 2,602 10.4 128.9
Revised Estimates
SELs management expects the current intense competition to subside in couple of quarters, however denting the order inflow target for the fiscal. We believe that given SELs strong execution capabilities, healthy balance sheet, increasing opportunities on road front and expected rationality in bidding process would ensure consistent order inflows for company in FY2013 and hence investors should not be wary of slowdown on order inflow front on quarterly basis. At current levels, the stock is trading at valuations of 13.3x FY2013E earnings and 2.1x FY2013E P/BV on a standalone basis. Our SOTP-based target price works out to `165/share, implying a 25.7% upside from current levels, based on a target P/E multiple of 9x to its FY2013E earnings and valuing its BOT arm on DCF basis. Thus, we maintain our Buy view on the stock and as one of our top picks in the sector.
November 1, 2011
Methodology
P/E
Remarks
9x FY2013E earnings
` cr `/share
1,327 1,474 206 141 110 37 112 342 220 100 72 134.0 1,146 88.6 98.3 13.7 9.4 7.3 2.5 7.5 22.9 14.6 6.6 4.8 8.9 76.5 165.1
FY2011 FY2012E FY2013E 2,363 2,209 6,965 3.2 1,586 2,602 5,948 2.3 2,371 2,768 5,551 2.0
Oper. Under Dev. Under Dev. Under Dev. Under Dev. Under Dev. Under Dev.
November 1, 2011
9.1 9.8
Investment arguments
Aggressive ramp-up of the road BOT portfolio, leveraging on EPC competence: SEL has slowly and steadily moved up in the value chain from being a cash contractor to becoming an asset owner. The company is leveraging its core competence in the EPC business to encash on the upcoming opportunities in the road BOT space. This not only serves to shore up its EPC order book but also ensures a consistent revenue stream for SEL in the long run. Strong order book renders top-line visibility: As of 2QFY2012, SEL had a robust order book of `6,259cr (2.8x FY2011 revenue), owing to healthy order booking witnessed in the road segment. SELs order book is spread across segments, including road (66.3%), irrigation (16.9%) and mining (11.8%), with an average execution period of 2430 months. Pertinently, the robust order book continues to provide top-line visibility for the company.
Key concerns
Interest rate: Road BOT projects are vulnerable to interest rate fluctuations, and any hike in interest rates would increase SELs interest costs. Commodity risks: Road players are facing pressures from the recent price inflation in commodities such as cement, steel, bitumen and diesel, which have a direct impact on margins. Awarding from NHAI: Slowdown in awarding activity by NHAI would hit order inflow for road-focused players such as SEL.
November 1, 2011
13,832 15,092 17,683 9,585 10,992 5,755 2,602 5,286 3,272 1,959 4,910 6,689 2,768 6,178 3,587 2,512 6,484
- Neutral
- Neutral
1,390 1,714
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Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) W.cap cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.5 1.4 5.5 0.6 1.7 4.9 1.0 2.8 3.5 0.5 1.4 4.7 0.6 1.7 4.2 0.3 1.1 4.9 4.1 22 58 104 43 4.3 19 73 89 76 4.2 12 104 128 103 6.3 10 93 125 68 6.6 11 109 136 71 6.4 12 120 140 79 25.6 27.0 23.5 20.6 21.0 23.9 16.4 17.1 14.7 21.3 22.9 23.5 20.4 21.8 19.7 19.0 20.4 17.1 9.6 0.7 2.8 18.5 9.6 0.4 22.1 9.7 0.8 2.2 16.8 9.4 0.5 20.7 9.1 0.5 1.9 9.4 5.7 0.8 12.2 9.0 0.7 2.5 15.6 7.1 0.7 21.8 9.2 0.7 2.4 14.7 8.4 0.5 18.1 9.3 0.7 2.2 13.8 7.4 0.5 16.7 4.1 3.4 4.3 0.4 19.1 6.0 5.0 6.1 0.4 22.9 4.3 3.6 5.1 0.4 26.1 8.0 8.0 9.8 0.5 41.8 10.0 9.1 11.2 0.5 51.0 13.5 9.8 12.2 0.5 63.8 38.6 30.4 6.9 0.3 2.3 21.0 4.7 26.1 21.6 5.7 0.3 2.0 18.1 3.8 36.5 25.5 5.0 0.3 1.9 17.1 2.8 16.5 13.4 3.1 0.4 1.0 10.1 2.2 14.4 11.7 2.6 0.4 0.9 9.0 1.9 13.3 10.8 2.1 0.4 0.8 7.8 1.6 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
November 1, 2011
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Sadbhav Engg No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
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