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Sadbhav Engineering 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Sadbhav Engineering (SEL) reported another set of strong numbers, marginally ahead of our expectations (highest on street) and way ahead of street estimates. Order inflow for 9MFY2012 stood at Rs.742cr, order book remained decent at Rs.5,940cr (2.7x FY2011 revenue). We are revising our toll  collection estimates for Ahmedabad Ring Road and Aurangabad Jalna projects. Also, we are factoring in lower interest cost for FY2013E as per management’s guidance. We remain positive on the stock, however owing to the recent run-up in the share price, we recommend Accumulate on the stock.

Strong quarterly performance: SEL reported robust top-line growth of 52.0% yoy to Rs.723.7cr, in-line with our estimate of Rs.714.3cr (consensus estimate of Rs.630cr).SEL has been able to maintain a sturdy execution pace for captive road BOT projects since the past few quarters, leading to robust revenue growth. On the margin front, the company posted EBITDAM of 10.4% (11.1%), marginally lower than our estimate of 10.7%. The only surprise came on the interest cost front, as it stood at Rs.10.6cr (Rs.9.7cr), registering a decline of 31.3% on a sequential basis and lower than our estimate of Rs.16.8cr. On the earnings front, SEL reported 58.1% growth yoy to Rs.41.7cr, above our expectation of Rs.38.9cr (consensus ~Rs.31.0cr) due to higher top-line growth and lower interest cost.

Outlook and valuation: SEL believes that there are already signs of reducing competition in the road BOT space, evident by the lower number of participants in the recent bidding of projects. Moreover, as per management, road BOT space will offer 70-80 projects in the next 15 months, implying some share of the pie for all players. Further, with a decent order book in hand, the company is concentrating more on improving the quality of earnings and maintain its PAT margins. Our revised SOTP-based target price works out to Rs.157/share (Rs.150/share), implying an 11.2% upside from current levels, based on a target P/E multiple of 9x to its FY2013E earnings and valuing its BOT arm on FCFE basis. Hence, we recommend Accumulate on the stock.