December 2, 2016 Sadbhav Engineering (SADENG) |...

December 2, 2016

ICICI Securities Ltd | Retail Equity Research

Result Update

Strong project pipeline ahead… • Sadbhav Engineering’s (SEL) topline de-grew 17.5% YoY to | 615.6

crore below our expectation of | 799.3 crore on account of muted execution in the mining and irrigation verticals

• Despite muted execution, the EBITDA margin contracted only 20 bps YoY to 10.6% and was above our expectation of 10.8%

• Net profit de-grew 33.4% YoY to | 18.5 crore (our estimate: | 36.4 crore) despite a lower effective tax rate (0.8% in Q2FY17 vs. 19.7% in Q2FY16) largely due to a dismal topline performance

Execution marred in Q2FY17, expect revival in H2FY17….

SEL witnessed muted execution in Q2FY17 mainly on the back of heavy rain and flood situation in MP impacting SEL’s irrigation work for almost two months (revenue impact of | 70 crore). Furthermore, in the road division, work was hampered on the Mysore-Bellary and Managuli-Devpura projects in Karnataka on account of the Kaveri water dispute (revenue impact of | 35 crore). Despite subdued execution in H1FY17 (~10% YoY decline in revenues), the management expects pick-up in H2FY17 and maintains 10% growth in revenues FY17. It has already witnessed a pick-up in execution with revenue booking of ~| 320 crore in October 2016. Furthermore, it also expects revenue booking worth ~| 300 crore from execution of hybrid annuity model (HAM projects). Overall, we expect SEL’s revenues to grow at a CAGR of 12.2% at | 4011 crore in FY16-18E. Orderbook at | 6234 crore; pipeline remains strong…. SEL’s orderbook was at | 6234 crore, 2.1x orderbook to bill ratio of 2.1x on a TTM basis. The current order book does not include five HAM projects worth ~| 3128 crore. Further, it expects orders worth ~| 3000-4000 crore in H2FY17E mainly in the road sector. In terms of opportunities, request for proposal (RFPs) worth ~| 21000 crore in EPC, ~| 25000 crore in HAM & ~| 1032 crore in BOT segment to be floated. In the mining division, nine projects would be floated, including five MDO projects and four mid-sized projects. The company has submitted a bid for one irrigation project worth ~| 2200 crore in Punjab. Overall, in our view, SEL is sitting in a sweet spot with a strong project pipeline ahead. Management expects to reduce debt to | 1000 crore by FY17E…. Sadbhav Infrastructure Project (SIPL – SEL holds 69% stake) has outstanding debt worth ~| 280 crore payable to SEL. Out of this, the management expects to receive~| 200 crore in H2FY17. Consequently, SEL’s standalone debt is expected to reduce by | 200 crore to ~| 1000 crore by FY17 end. Expect pick up in execution in H2FY17; maintain BUY Though SEL reported dismal execution in Q2FY17, we anticipate a pick-up in execution in H2FY17. Furthermore, SEL is well placed to capture strong opportunities across sectors given its strong execution capabilities. We expect its topline, bottomline to grow at 12.2%, 18.2% CAGR, respectively, in FY16-18E. Hence, we maintain our BUY recommendation on the stock with an SOTP based revised target price of | 312. We have valued SEL’s 69% stake in SIPL at | 157/share and EPC business at | 155/share (8x FY18 EV/EBITDA implying 14.2x FY18 EPS).

Rating matrix Rating : BuyTarget : | 312Target Period : 12 monthsPotential Upside : 13%

What’s Changed? .

Target Changed from | 330 to | 312EPS FY17E Changed from | 11.9 to | 10.5EPS FY18E Changed from | 12.7 to | 10.9Rating Unchanged

Quarterly Performance

Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%)Revenue 615.6 745.9 -17.5 807.0 -23.7EBITDA 65.4 80.8 -19.0 86.8 -24.7EBITDA (%) 10.6 10.8 -21 bps 10.8 -14 bpsPAT 18.5 27.8 -33 48.7 -62

Key Financials (| Crore) FY15 FY16 FY17E FY18ENet Sales 2,969.9 3,186.3 3,356.4 4,011.0 EBITDA 300.2 325.4 359.5 433.7 Net Profit 113.8 133.7 179.5 186.9 EPS (|) 6.6 7.8 10.5 10.9

Valuation summary

(x) FY15 FY16 FY17E FY18EP/E 41.5 35.3 26.3 25.2 Target P/E 47.1 40.0 29.8 28.6 EV / EBITDA 19.2 18.1 15.8 13.4 P/BV 3.5 3.2 2.9 2.6 RoNW (%) 8.4 9.1 11.0 10.3 RoCE (%) 11.5 12.2 11.0 12.2

Stock data Particular AmountMarket Capitalization | 4716 CroreTotal Debt | 1217 CroreCash and Investments | 37 CroreEV | 5897 Crore52 week H/L (|) 370 / 199Equity capital | 17 CroreFace value | 1

Price performance (%)

Return % 1M 3M 6M 12M

PNC Infratech (11.4) (9.1) (2.8) 4.0

Sadbhav Engg (2.3) (7.4) 0.1 (21.1)

Ashoka Buildcon (10.1) (7.9) 6.0 (21.1)

IRB Infra (20.8) (17.7) (15.4) (26.1)

Research Analyst

Deepak Purswani, CFA [email protected]

Vaibhav Shah [email protected]

Sadbhav Engineering (SADENG) | 270


Variance analysis Q2FY17 Q2FY17E Q2FY16 YoY (Chg %) Q1FY17 QoQ (Chg %) Comments

Income from Operation 615.6 799.3 745.9 -17.5 807.0 -23.7 Topline performance was dismal due to muted execution during the quarter

Other Income 0.8 3.0 3.8 -79.5 4.8 -83.7

Construction Expenses 483.9 655.8 602.4 -19.7 662.1 -26.9Employee Cost 35.3 31.2 31.9 10.7 31.5 12.1Other expenditure 31.1 26.3 30.8 0.9 26.6 17.1Total Expenditure 550.3 713.3 665.2 -17.3 720.1 -23.6

EBITDA 65.4 86.0 80.8 -19.0 86.8 -24.7EBITDA Margin (%) 10.6 10.8 10.8 -21 bps 10.8 -14 bps EBITDA margin contracted 21 bps YoY to 10.6% (our estimate:

10.8%) due to higher other expenses as a percentage of sales (5.1% in Q2FY17 vs. 4.1% in Q2FY16

Depreciation 25.3 25.4 21.4 18.2 25.4 -0.4Interest 22.1 18.0 16.7 32.7 17.2 28.6

PBT 18.7 45.5 34.6 -46.1 48.9 -61.8Taxes 0.1 9.1 6.8 -97.9 0.2 -37.9 Tax rate came in almost nil due to a MAT credit entitlement of |

14.4 crore in Q2FY17Reported PAT 18.5 36.4 27.8 -33.4 48.7 -61.9 Net profit de-grew 33.4% YoY to | 18.5 crore despite lower

effective tax rate (0.8% in Q2FY17 vs. 19.7% in Q2FY16) due to dismal topline performance and higher interest expenses ( | 22.1 crore vs. | 16.7 crore in Q2FY16)

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % ChangeRevenue 3,717.5 3,356.4 -9.7 4,329.0 4,011.0 -7.3EBITDA 387.1 359.5 -7.1 455.0 433.7 -4.7EBITDA Margin (%) 10.4 10.7 31 bps 10.5 10.8 31 bpsPAT 203.3 179.5 -11.7 217.3 186.9 -14.0EPS (|) 11.9 10.5 -12.1 12.7 10.9 -14.2 We have factored in muted execution in our estimates

FY17E FY18E

Source: Company, ICICIdirect.com Research Assumptions

CommentsFY13 FY14 FY15 FY16 FY17E FY18E FY17E FY18E

Order inflow 4,403 2,317 2,220 2,463 7,000 8,200 7,000 8,200 We have factored in order inflow of | 7000 crore in line with management guidance

Order inflow (Y-o-Y%) 35 -47 -4 11 184 17 184 17Order backlog 10,143 8,941 8,200 7,487 11,144 15,349 10,782 14,668Execution rate % (avg) 20 25 35 41 36 30 41 34

Current Earlier

Source: Company, ICICIdirect.com Research


Conference call highlights:

• Orderbook & bidding update: The company’s orderbook was at

| 6234 crore, implying an orderbook to construction bill ratio of 2.1x on a TTM basis. The above orderbook does not include five HAM projects worth ~| 3128 crore including which the orderbook is at ~| 9362 crore. Furthermore, the company expects an order inflow of ~| 5000-7000 crore in FY17E mainly in the road sector. RFPs worth ~| 21000 crore in EPC, ~| 25000 crore in HAM and ~| 1032 crore in the BOT segment would be floated while RFQs worth ~| 330 crore in EPC and ~| 9099 crore in BOT would be floated in the road division

• Impact of demonetisation: According to the management, there has

not been much impact of demonetisation on the project execution and worker payment front as they have bank accounts while payments are done accordingly

• HAM update: The management said the gross equity requirement in

five HAM projects would be to the tune of ~| 460 crore (net equity requirement: ~| 160-170 crore). SIPL has achieved financial closure for four projects and expects to receive operation date by December and start execution in January, 2017. For the Bangalore project, it expects to achieve financial closure in January and operation date by January. It expects to start execution in February, 2017

• Mining division update: The work on Bharat Coking Coal project has

stopped currently as the company is facing a service tax issue and expects to reach a resolution by December end. Meanwhile, rest of the mining projects are on track. Further, nine mining projects would be floated, which includes five MDO projects and four mid-sized projects. The company would look to bid for MDO projects either alone or in a joint venture with some partner

• Irrigation division update: The company has submitted a bid for an

irrigation project in Punjab worth ~| 2200 crore • Debt update: SIPL has an outstanding debt worth ~| 280 crore

payable to SEL. The management expects to receive~| 200 crore in H2FY17 and the remainder in FY18. The proceeds would be used to reduce debt and fund working capital requirements. For SEL, the standalone debt is at ~| 1100 crore. The management expects it to reduce to ~| 1000 crore by FY17 end. Currently, the consolidated debt is at ~| 9370 crore

• High debtors: Debtors rose in H1FY17 as working capital was blocked

in several EPC projects. The management expects that to free up in H2FY17 and expects debtors to reduce significantly. Going forward, for HAM projects, the company would be receiving mobilisation advance worth ~| 325 crore

• Tax details: The management expects the tax rate to remain nil in

FY17E and in Q1FY18E as the company will take benefits under 80IA • Mysore-Bellary project: The company has completed the project

ahead of schedule barring the 6.5 km patch, which it has not received from the government. The scheduled date of completion is June, 2017. The company expects to receive bonus for early completion


Robust construction order book to drive revenues, going ahead…

Overall, SEL’s order book is currently at | 6234 crore, implying a book to bill ratio of 2.1x on a TTM basis providing visibility for the next couple of years. The above orderbook does not include five HAM projects worth ~| 3128 crore. Over the past five years, SEL has improved its presence in the irrigation & mining segment from 26% of total order book as on FY11 to 50.6% as on Q2FY17. However, the management has indicated that over the next two or three years, the orderbook would be road sector heavy. Given the strong order book, we expect construction revenues to grow at 12.2% CAGR in FY16-18E to | 4011.0 crore.

Exhibit 1: Quarterly orderbook trend…

9306

8273

7487

6829

6234

2.52.9

2.32.8

2.1

4000

6000

8000

10000

Q2FY

16

Q3FY

16

Q4FY

16

Q1FY

17

Q2FY

17

(| c

rore

)

1.0

2.0

3.0

4.0

(x)

Order book Order book to bill ratio (RHS)


Exhibit 2: Annual orderbook trend…

101438941

82007487

10782

14668

4000

6000

8000

10000

12000

14000

16000

FY13 FY14 FY15 FY16 FY17E FY18E

(| c

rore

)


Exhibit 3: Top five projects by execution during Q2FY17 Project Segment Execution during Q2FY17EPE-I Transport-EPC 106.9

Yamunanagar Panchkula II Transport-EPC 60.7

EPE-II Transport-EPC 47.9

Yamunanagar Panchkula I Transport-EPC 39.5

Jodhpur Pachpadra Transport-EPC 38.7


The order book was at | 6234 crore, 2.1x book to bill on

TTM basis. Including five recently won HAM projects, the

order book was at | 9362 crore


Exhibit 4: Segmental break-up of order book

5420 4568 4071 3651 3211

17331644

1442 1276 1187

21532061

19751902 1836

0

2000

4000

6000

8000

10000

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

(| c

rore

)

Road Irrigation Mining


Exhibit 5: Quarterly segmental revenue trend

461.0 428.1 401.6

111.433.3

131.6 131.5 160.2

449.3

424.4

31.5 100.4203.5

72.3

90.3

119.8 92.2

87.2

168.4

65.9

0.0

200.0

400.0

600.0

800.0

1000.0

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

(| c

rore

)

BOT EPC Irrigation Sector Mining Sector

Source: Company, ICICIdirect.com, Research

Exhibit 6: Revenue trend…

1,81

1.0

2,35

8.1

2,96

9.9

3,18

6.3

3,71

7.5

4,32

9.0

-

1,000

2,000

3,000

4,000

5,000

6,000


(| c

rore

)16.6% CAGR

Source: Company, ICICIdirect.com, Research

EBITDA margin to improve 60 bps to 10.8% during FY16-18E… SEL’s construction business has historically enjoyed 10.5-11% margins. Margins had dropped to 8.9% in FY13, given the unabsorbed fixed cost on account of slower execution. However, it has bounced back to 10.2% in FY16 with a pick-up in execution. Going ahead, we anticipate SEL’s EBITDA margin to improve 60 bps to 10.8% in FY16-18E on account of better execution providing better operating leverage. Exhibit 7: Margins to inch up…

155.

7

249.

4

300.

2

325.

4

359.

5

433.

7

8.6

10.1 10.2

10.7 10.810.6

75

175

275

375

475


(| c

rore

)

8.0

9.0

10.0

11.0

(%)

EBITDA EBITDA Margin (RHS)


The road sector dominates the order book with ~49% of the total order backlog

Going ahead, we anticipate SEL’s EBITDA margin to

improve 60 bps to 10.8% in FY16-18E on account of better

execution providing better operating leverage


Bottomline to grow at 18.2% CAGR during FY16-18E… Due to delays in execution, the bottomline was impacted in FY13, which had declined 47.3% YoY to | 74.1 crore. Earnings, however, climbed back and grew at a CAGR of 21.8% in FY13-16 to | 133.7 crore with sharp execution across BOT projects. Going ahead, we expect SEL’s net income to grow robustly at a CAGR of 18.2% in FY16-18E to | 186.9 crore. Exhibit 8: PAT trend

106.

2

113.

8

74.1

133.

7

179.

5

186.

9

4.1

4.5

5.3

4.73.8

4.2

-

60

120

180

240

300


(| c

rore

)

3

4

5

6

(%)

PAT PAT Margin (RHS)


Return ratios to bounce back… The return ratios for SEL’s standalone business were in the range of ~20-21% in FY11 and FY12 given the sharp execution. The same had slumped to ~9.1% in FY16. However, with an improvement in execution and stable margins supporting healthy bottomline growth, we expect RoE and RoCE of SEL’s standalone business to bounce back to 10.3% and 12.2%, respectively, in FY18E. Exhibit 9: Return ratio trend

8.911.1

8.49.1

11.0

10.3

8.3

11.8 11.512.2

11.0

12.2

2

4

6

8

10

12

14


(%)

RoNW RoCE


With an improvement in execution and stable margins

supporting healthy bottomline growth, we expect the RoE

and RoCE of SEL’s standalone business to bounce back to

10.3% and 12.2%, respectively, in FY18E


BOT segment update…

SIPL, a subsidiary of SEL (it holds 68.4%) has a strong BOT portfolio of 12 road projects of which one project is in the construction phase. The current BOT project portfolio is well funded with no more equity commitment.

Exhibit 10: Operational BOT projects status Particulars ARRIL AJTL BHTPL HYTPL NSEL RPTPL MBCPNL DPTL

Stake held by SIPL 0.9 1.0 0.8 1.0 1.0 1.0 0.8 0.7

Project Type Toll Toll Toll Toll Annuity Toll Service Fee Toll

JV Partner Patel Infra NA Monte Carlo Ltd NA NA NA SREI Infra HCC & JLL Group

Client AUDAGovt. of

Maharashtra NHAI NHAI NHAI NHAIGovt. of

Maharashtra NHAI

Lane kms 305.4 263.2 388.8 142.6 110.9 323.4 22 Border CP's 355.2

Project Cost (| crore) 543.5 275.4 1322.6 513.1 277.9 1213.4 1426.3 1420.0



Outlook and Valuation Though SEL reported dismal execution in Q2FY17, we expect a pick-up in execution in H2FY17. Furthermore, SEL is well placed to capture strong opportunities across sectors given its strong execution capabilities. We expect its topline, bottomline to grow at 12.2%, 18.2% CAGR, respectively, in FY16-18E. Hence, we maintain our BUY recommendation on the stock with SOTP based revised TP of | 312/share. We have valued SEL’s 69% stake in SIPL at | 157/share and EPC business at | 155/share (8x FY18 EV/EBITDA implying 14.2x FY18 EPS). BOT projects: We have valued SIPL at | 157/share using FCFE methodology. To value each project, we have considered traffic growth of 6% per annum and toll growth rate as per the agreement (either 5% per annum or 18% after every three years). Construction business: We have valued SEL’s construction business at | 155/share (8x FY18E EV/EBITDA implying 14.2x FY18 EPS).

Exhibit 11: BOT valuation

Projects NameProject cost

(| cr) Debt Equity (|

cr)

SIPL Commitem

ent* CoE(%)Equity value

(| cr)SIPL

Stake(%)SIPLs stake value (| cr)

Value per share (|)

Operational/partially operational projects 7617 6278 1227.6 941.9 5807 3905 227.7

Ahmedabad Ring Road Infrastructure Ltd. (ARRIL) 501 405 52 42 12% 440 80 352 20.5

Aurangabad - Jalna Tollway Ltd. (AJTL) 277 222 55 83 12% 317 100 317 18.5

Mumbai - Nashik Expressway Ltd. (MNEL) 795 650 94 24 12% 1412 20 90 5.2

Nagpur Seoni Expressway Ltd. (NSEL) 490 432 58 44 12% 66 51 34 2.0

Dhule Palasner Tollway Ltd. (DPTL) 1420 1349 355 136 12% 885 100 885 51.6

Maharashtra Border Check Post Network Ltd. (MBCPNL) 1184 1022 184 184 13% 1526 90 1374 80.1

Hyderabad Yadagiri Tollway Pvt. Ltd.(HYTPL) 480 380 60 60 12% 339 60 204 11.9

Rohtak Panipat Tollway Private Ltd. (RPTPL) 1213 971 265 265 12% 77 100 77 4.5

Bijapur Hungund Tollway Private Ltd. (BHTPL) 1257 847 106 106 12% 743 77 572 33.4

Under Construction 3817 2466 635 595 1661 1523 88.8

Gomati ka Chauraha - Udaipur (SUTPT) 1150 835 315 315 13% 663 100 663 38.7

Rajsam Bilawara (BRTPL) 720 321 133 133 13% 369 100 369 21.5Rohtak Hissar (RHTPL) 1210 891 108 108 13% 353 100 353 20.6Mysore Bellary (MBHPL) 737 419 79 40 13% 276 50 138 8.0

Less: SIPL Holdco Debt -1083 -63.1

Total value 11434 8743 1862 1537 7467 4345 253.3


Exhibit 12: Valuation summary Valuation summary Stake (%) | crore Value per share (|)

BOT projects (A)

SIPL Valuation 4344.7 253

SEL stake valuation 69.0 2696 157

Construction Business (B)

FY18E EBITDA 433.7

EV/EBITDA (x) 8.0

Construction business valuation 3469.2

FY18E Net debt 812.5

Equity Value (B) 100.0 2656.8 155

Total SoTP Value (A)+(B) 5352.9 312


We assign a BUY rating to the stock with an SoTP based

target price of | 312/share


Recommendation history vs. Consensus

100

200

300

400

500

Nov-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jun-15Apr-15Feb-15Nov-14

(|)

0.010.020.030.040.050.060.070.080.090.0100.0

(%)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventSep-14 Sadbhav Infrastructure Project (subsidiary of Sadbhav Engineering) signs binding memorandum of agreement with the latter's JV partner Patel Infrastructure to acquire

20% stake in Ahmedabad Ring Road InfrastructureDec-14 Sadbhav Infrastructure Projects (SIPL), subsidiary of Sadbhav Engineering files draft papers with Sebi for raising up to | 600 crore through an initial public offering

(IPO). The issue consists of a fresh issue of equity shares of | 10 each aggregating up to | 600 crore and an offer for sale of up to 16,178,811 equity shares by Xander Investment Holding and up to 16,178,811 equity shares by Norwest Venture Partners

Jun-15 Sadbhav-PIPL JV has been awarded the project by MoRTH and Punjab State PWD for development to four lanes with paved shoulders of Tapa to Bhathinda section of NH-64 from existing 168 km to 209.4 km worth | 453.8 crore on EPC mode

Aug-15 Start of toll revenue at Kharpi (on MSH6), Biloli (on SH225), Deori (on NH6) and Muktainagar (on MSH8)Aug-15 The company declared lowest bidder in two NHAI projects on EPC basis for continuous stretch of 45.5 km for aggregating value of | 1557 croreFeb-16 Sadbhav Infrastructure Project, a subsidiary of Sadbhav Engineering has received a provisional certificate for developed section on 11.35 km length in Dhule Palesner

Tollway. Feb-16 SEL transferred its entire 20% stake in Mumbai Nashik Expressway Limited (MNEL) to BIF India Holdings PTE Ltd for ~| 72 crore. Apr-16 Sadbhav Infrastructure Pvt Ltd (SIPL), a subsidiary of Sadbhav Engineering has completed the refinancing of its | 436 crore debt in the Hyderabad-Yadgiri tollway

project


Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Patel (Vishnubhai M) 30-Sep-16 16.4% 28.1 0.02 Sadbhav Finstock Pvt. Ltd. 30-Sep-16 9.6% 16.5 0.03 Patel (Shantaben V) 30-Sep-16 8.6% 14.7 0.04 HDFC Asset Management Co., Ltd. 30-Sep-16 7.4% 12.7 -0.75 ICICI Prudential Asset Management Co. Ltd. 30-Sep-16 5.6% 9.6 0.06 Tata Asset Management Limited 31-Oct-16 5.3% 9.2 0.07 Nomura Asset Management Co., Ltd. 30-Sep-16 3.8% 6.6 1.68 SBI Funds Management Pvt. Ltd. 30-Sep-16 3.6% 6.1 0.09 Patel (Shashin V) 30-Sep-16 3.2% 5.5 0.010 Patel (Vikram R) 30-Sep-16 2.7% 4.6 0.0

(in %) Dec-15 Mar-16 Jun-16Promoter 47.10 47.17 47.16Public 52.90 52.83 52.84Others 0.00 0.00 0.00Total 100.00 100.00 100.00

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value(m) Shares(m) Investor name Value(m) Shares(m)Norges Bank Investment Management (NBIM) 11.04 2.61 Patel (Vishnubhai M) HUF (19.60) (4.58)Nomura Asset Management Co., Ltd. 6.82 1.61 HDFC Asset Management Co., Ltd. (2.90) (0.69)SBI Asset Management Co., Ltd. 4.23 1.00 Invest AD (0.73) (0.17)William Blair & Company, L.L.C. 0.31 0.08 J.P. Morgan Asset Management (Hong Kong) Ltd. (0.65) (0.15)Amundi Hong Kong Limited 0.31 0.08 Taurus Asset Management Co. Ltd. (0.32) (0.08)

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary Profit and loss statement | Crore (| Crore) FY15 FY16 FY17E FY18ENet Sales 2,969.9 3,186.3 3,356.4 4,011.0Growth (%) 25.9 7.3 5.3 19.5Other Income 65.5 90.5 60.1 41.1Total Revenue 3,035.4 3,276.8 3,416.5 4,052.1Raw Material Expenses 735.3 951.6 995.7 1,185.9Construction Expenses 1,696.7 1,638.9 1,716.3 2,051.0Administrative Expenses 233.4 270.4 284.9 340.4Total operating expenses 2,669.6 2,860.9 2,996.9 3,577.3EBITDA 300.2 325.4 359.5 433.7Growth (%) 20.4 8.4 10.5 20.6Interest 138.2 151.5 139.4 116.7Depreciation 81.7 84.9 98.9 108.9PBT 145.9 160.0 181.3 249.1Total Tax 32.1 26.3 1.8 62.3PAT 113.8 133.7 179.5 186.9Growth (%) 7.2 17.5 34.2 4.1EPS (Diluted) 6.6 7.8 10.5 10.9


Cash flow statement | Crore (| Crore) FY15 FY16 FY17E FY18EProfit after Tax 113.7 133.7 179.5 186.9Depreciation 81.71 84.9 98.9 108.9Cash Flow before WC changes 259.8 274.4 359.5 433.7Net Increase in CA -312.5 -32.0 -54.6 -498.0Net Increase in CL 16.2 -78.4 98.8 196.1Cash Flow from Operating Act. -36.5 163.9 401.9 69.4

(Purchase)/Sale of FA -148.9 -86.0 -100.0 -100.0Cash flow from Investing Act. -251.6 -110.8 -39.9 -58.9

Others -14.8 -28.9 -60.1 -41.1Proceeds from LT Borrowings 297.1 82.2 -89.4 -216.7

Cash flow from Financing Act. 236.6 -51.9 -103.5 -230.8Net Cash flow -51.5 1.2 258.5 -220.3Opening Cash/ Cash Equivalent 57.7 6.3 36.7 295.2Closing Cash/ Cash Equivalent 35.1 36.7 295.2 74.9


Balance sheet | Crore (| Crore) FY15 FY16 FY17E FY18ELiabilitiesShare capital 17.2 17.2 17.2 17.2Stock Option Premium outstanding 0.0 0.0 0.0 0.0Share warrant 0.0 0.0 0.0 0.0Reserves & Surplus 1,334.9 1,454.3 1,619.7 1,792.6Total Shareholders funds 1352.1 1471.5 1636.9 1809.7Secured Loans 1,006.2 971.0 1,021.0 921.0Unsecured Loans 90.1 246.4 246.4 246.4Deferred Tax Liability 24.4 23.2 23.2 23.2Sources of funds 2472.8 2712.0 2927.4 3000.2AssetsGross Block 851.2 938.8 1,038.8 1,138.8Accumulated Depreciation 315.5 383.8 482.7 591.5Net Block 535.7 555.0 556.1 547.2

Investments 531.3 527.8 527.8 527.8

Inventory 213.4 140.6 148.1 177.0Debtors 936.0 1,037.2 1,107.6 1,323.6Loans and Advances 1,209.4 1,236.1 1,208.3 1,443.9Other Current Assets 64.1 85.2 89.7 107.2Cash 35.1 36.7 295.2 74.9Total Current Assets 2,458.0 2,535.8 2,849.0 3,126.7Current Liabilities 435.2 410.4 432.3 516.6Provisions 162.0 125.9 183.1 218.8Net current assets 1,860.8 1,999.5 2,233.6 2,391.4

Application of funds 2472.8 2712.0 2927.4 3000.2


Key ratios FY15 FY16 FY17E FY18E

Per share data (|)Reported EPS 6.6 7.8 10.5 10.9Cash EPS 11.4 12.7 16.2 17.2BV per share 78.8 85.8 95.4 105.5Dividend per share 0.8 0.8 0.8 0.8Cash Per Share 2.0 2.1 17.2 34.5Operating Ratios (%)EBITDA Margin 10.1 10.2 10.7 10.8PBT / Net Sales 4.9 5.0 5.4 6.2PAT Margin 3.8 4.2 5.3 4.7Inventory days 26.2 16.1 16.1 16.1Debtor days 115.0 118.8 120.5 120.5Creditor days 55.9 42.4 42.4 42.4Return Ratios (%)RoE 8.4 9.1 11.0 10.3RoCE 11.5 12.2 11.0 12.2RoIC 9.0 9.0 9.9 11.1Valuation Ratios (x)P/E 41.5 35.3 26.3 25.2EV / EBITDA 19.2 18.1 15.8 13.4EV / Net Sales 1.9 1.9 1.7 1.4Market Cap / Sales 1.6 1.5 1.4 1.2Price to Book Value 3.5 3.2 2.9 2.6Solvency RatiosDebt/EBITDA 3.7 3.7 3.5 2.7Debt / Equity 0.8 0.8 0.8 0.6Current Ratio 2.3 2.8 2.5 2.5Quick Ratio 2.1 2.6 2.4 2.4



ICICIdirect.com coverage universe (Infrastructure) CMP M Cap(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

NBCC (NBCC) 228 281 Buy 13,680 5.1 5.1 8.0 44.4 44.7 28.3 35.7 36.9 21.4 9.2 8.3 7.2 20.7 18.5 25.3IRB Infra (IRBINF) 189 235 Buy 6,613 19.1 18.9 17.1 3.8 3.3 2.8 1.2 1.1 0.9 1.3 1.1 1.1 13.2 11.9 9.9PNC Infratech (PNCINF) 109 140 Buy 2,733 9.5 7.7 8.4 12.4 15.3 14.0 11.0 9.6 7.3 2.2 1.9 1.7 11.3 12.7 12.4Sadbhav Engg. (SADENG) 275 330 Buy 4,706 7.8 11.9 12.7 35.2 23.2 21.7 18.1 15.0 12.9 3.2 2.8 2.5 9.1 12.2 11.7Ashoka Buildcon (ASHBUI) 144 160 Hold 2,682 3.7 4.4 5.2 45.7 45.7 45.7 9.6 9.5 8.6 1.4 1.4 1.3 3.1 3.6 4.1Simplex Infra (SIMCON) 302 440 Buy 1,488 14.8 16.5 31.8 21.5 19.4 10.0 7.7 6.7 5.9 1.0 1.0 0.9 4.9 5.2 9.4NCC (NAGCON) 78 93 Buy 4,353 4.0 3.8 5.5 20.2 21.1 14.7 8.4 8.3 7.2 1.3 1.3 1.2 6.5 6.0 8.0

Sector / CompanyRoE (%)EPS (|) P/E (x) EV/EBITDA (x) P/B (x)



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


Disclaimer

ANALYST CERTIFICATION We , Deepak Purswani, CFA MBA (Finance) and Vaibhav Shah, MBA (Finance); 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: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Deepak Purswani, CFA MBA (Finance) and Vaibhav Shah MBA (Finance); 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. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Deepak Purswani, CFA MBA (Finance) and Vaibhav Shah MBA (Finance); research analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

December 2, 2016 Sadbhav Engineering (SADENG) |...

Documents

Transcript of December 2, 2016 Sadbhav Engineering (SADENG) |...