INSUBCONTINENT EXCLUSIVE:
Anand Rathi has a buy call on Sadbhav Engineering with a target price of Rs 272.
The current market price of Sadbhav Engineering is Rs
195.95.
Time period given by the brokerage is one year when Sadbhav Engineering price can reach the defined target.
Investment rationale by
the brokerageLiquidity squeeze swells debt; hopeful of year-end debt target: A general liquidity squeeze necessitated Sadbhav supporting
vendors, sub-contractors; these early payments helped obtain better raw material prices (reflected in the improved EBITDA margin
sequentially) consequently, debt in Q2/ H1 rose, despite part repayment by Sadbhav Infra and partial recovery of old dues.
Notwithstanding
the recent rise, management still hopes to deliver on its year-end debt target (about Rs 12.5bn-13bn), largely aided by mobilisation
receipts.
Monetisation trial: With traffic due diligence at advanced stages, management hopes to soon close a deal for 12 road BOT-toll
If successful, meaningful de-leveraging for the group could ensue.
The FC status: Of the recent five hybrid annuity projects, financial
closure has been achieved for one and sanction letters obtained for two, with the third underway, despite turbulent times in Indian infra
The fifth project awaits concession agreement signing
All are expected to be closed by year-end.
Valuation: We adjust our estimates for the longer-than-expected time to attain FC/appointed dates
for the recent hybrid annuity projects
Thus, we lower FY19e earnings about 11 per cent (and about 14 per cent for FY20)
On our revised estimates, the stock trades at EV/ EBITDA (excl
the value for BOTs) of 5x FY19e and 4.1x FY20e
Risk: Any significant delay in appointed dates for orders.
