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Sadbhav Engineering 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Sadbhav Engineering (SEL) reported a disappointing set of numbers, which were significantly below our and consensus estimates. SEL had an order book of Rs.8,747cr (3.3x FY2012 revenue) as of 3QFY2013, which provides good revenue visibility. We maintain our Buy view on the stock.

Execution falters; to improve in FY2014: On the top-line front, SEL reported a revenue decline of 51.3% yoy to Rs.353cr which was significantly below our and street estimate by 53% and 40% respectively. This was mainly on account of slower execution pace in the remaining under-construction projects and delay in start of construction activity in newly awarded projects. On the margin front, the company’s EBITDAM declined by 200bp yoy to 9.4% against our estimate of 10.3%. Interest cost grew by 28.2% yoy/17.1% qoq to Rs.21cr and was in line with our estimate. On the bottom-line front, the company reported a PAT of Rs.4cr (significantly below our estimate), a decline of 91.1% yoy. This was mainly due to lower-than-expected revenue growth and higher interest expense during the quarter.

Outlook and valuation: For FY2013, SEL has reiterated a muted performance on the revenue front. It expects two recently won BOT projects – Gomti-ka-Chauraha and Solapur-Bijapur to contribute revenue from 1QFY2014. Given the poor performance in 9MFY2013, we have revised our FY2013 and FY2014 EPS estimates downwards to Rs.3.2 (earlier estimate was of Rs.7.2) and Rs.7.2 (earlier estimate was of Rs.8.2) respectively. We continue to maintain our Buy view on the stock with a SOTP target price of Rs.157, owing to robust order backlog of Rs.8,747cr (3.3x FY2012 revenue), strong balance sheet and as the company’s equity requirement for under-construction/development projects is expected to be met by internal accruals.