Weak
execution,
but
strong
order
outlook
February
09,
2016
Q3FY16
Result
Update
Kunal
Sheth
[email protected]
+91
‐
22
‐
66322257
Samir
Bendre
[email protected]
+91
‐
22
‐
66322256
Rating
BUY
Price
Rs299
Target
Price
Rs340
Implied
Upside
13.7%
Sensex
24,021
Nifty
7,298
(Prices
as
on
February
09,
2016)
Trading
data
Market
Cap.
(Rs
bn)
44.8
Shares
o/s
(m)
150.0
3M
Avg.
Daily
value
(Rs
m)
32.9
Major
shareholders
Promoters
47.10%
Foreign
14.71%
Domestic
Inst.
27.09%
Public
&
Other
11.10%
Stock
Performance
(%)
1M
6M
12M
Absolute
(5.3)
(10.8)
(1.9)
Relative
(1.6)
4.1
13.0
How
we
differ
from
Consensus
EPS
(Rs)
PL
Cons.
%
Diff.
2017
9.6
12.3
‐
21.6
2018
13.0
16.2
‐
19.9
Price
Performance
(RIC:
SADE.BO,
BB:
SADE
IN)
Source:
Bloomberg
0
50
100
150
200
250
300
350
400
Fe
b
‐
15
Ap
r
‐
15
Ju
n
‐
15
Au
g
‐
15
Oc
t
‐
15
De
c
‐
15
Fe
b
‐
16
(Rs)
Subdued
performance
:
Sadbhav
Engineering
(SEL)
reported
revenues
of
Rs7.5bn
(PLe:
Rs8.2bn),
up
4%
YoY.
Revenues
from
Roads
were
up
25%,
while
Irrigation
and
Mining
segment
were
down
27
and
34%
YoY
respectively.
EBITDA
was
up
0.6%
YoY
to
Rs739m,
though
EBITDA
margins
dipped
40bps
YoY
to
9.8%
(PLe:
10.8%)
due
to
increase
in
other
expense
(VAT
payment
on
Mysore
Bellary
project),
Adj.
PAT
was
down
31%
YoY
to
Rs260m
(PLe:
Rs382m).
SEL
is
focusing
on
completing
current
order
book
from
irrigation
segment
as
it
want
to
concentrate
on
larger
ticket
size
orders
going
ahead.
SEL
believes
new
EPC
projects
won
in
FY16
will
drive
growth
in
FY17.
Traction
remains
strong
on
orders
:
Order
book
at
the
end
of
Q3FY16
stood
at
Rs82.7bn,
up
1%
YoY.
While
no
new
orders
were
booked
in
Q3,
order
inflow
for
9MFY16
stood
at
~Rs26bn.
SEL
has
removed
order
worth
Rs
3bn
from
order
book
due
to
non
allotment
of
project
from
clients
(Maharashtra
Road
Transport
Corporation).
SEL
continues
to
see
healthy
traction
in
the
Road
sector;
according
to
SEL,
~18
tenders
on
Hybrid
annuity
model,
6
BOT
projects
(
~
Rs
68bn)
and
EPC
projects
worth
Rs
190bn
are
up
for
bidding
over
the
next
few
months.
In
mining
segment,
3
large
MDO
are
expected
in
near
term
(2
NTPC
and
1
Gujarat
state
electricity)
few
small
tenders
from
DVC
are
also
expected
to
come
up
for
bidding.
In
irrigation
segment
tender
worth
Rs
180bn
in
Telengana
and
Rs
22bn
in
MP
are
up
for
bidding
over
next
few
months.
Contd...2
Key
financials
(Y/e
March)
2015
2016E
2017E
2018E
Revenues
(Rs
m)
30,041
32,256
36,127
45,158
Growth
(%)
27.4
7.4
12.0
25.0
EBITDA
(Rs
m)
3,345
3,370
4,027
5,077
PAT
(Rs
m)
1,480
1,324
1,632
2,206
EPS
(Rs)
8.7
7.8
9.6
13.0
Growth
(%)
24.5
(10.6)
23.3
35.2
Net
DPS
(Rs)
0.7
0.7
0.7
0.7
Profitability
&
Valuation
2015
2016E
2017E
2018E
EBITDA
margin
(%)
11.1
10.4
11.1
11.2
RoE
(%)
12.8
9.3
10.5
12.7
RoCE
(%)
10.1
8.1
9.3
10.7
EV
/
sales
(x)
2.0
1.8
1.6
1.3
EV
/
EBITDA
(x)
17.8
17.3
14.4
11.7
PE
(x)
34.2
38.2
31.0
22.9
P
/
BV
(x)
3.7
3.4
3.1
2.8
Net
dividend
yield
(%)
0.2
0.2
0.2
0.2
February
09,
2016
2
BOT
projects
‐
Healthy
traffic
growth/improved
finances
:
SIPL
(Sadbhav
Infra
Projects)
saw
toll
collection
of
Rs4.6bn,
with
EBITDA
of
Rs3bn
and
a
net
loss
of
Rs2.6bn
for
9MFY16.
SIPL
saw
average
traffic
growth
of
~8
‐
10%
across
projects.
They
believe
that
traffic
has
bottomed
out
and
expect
steady
recovery
in
traffic
growth,
going
ahead.
At
SPV
level,
SEL
has
been
able
to
refinance
debt
in
few
projects
(Aurangabad
‐
Jalna/Hyderabad
‐
Yadgiri/Bijapur
‐
Hungud/Dhule)
and
reduce
interest
cost
by
~100
‐
120bps;
SEL
expects
benefit
of
~Rs400
‐
450m
in
a
12
‐
month
period
due
to
re
‐
financing.
They
have
also
been
able
to
renegotiate
payment
tenure
for
this
project
(more
back
‐
ended
payment)
and
been
able
to
tie
‐
up
funds
for
the
first
major
maintenance
due
between
FY16
‐
FY19
in
the
above
four
projects
at
various
times.
This
measure
should
help
improve
cash
flow
of
the
projects
in
the
medium
term.
SEL
expects
toll
revenue
to
be
~Rs8bn
in
FY16,
up
from
Rs4.8bn
in
FY15
due
to
completion
of
acquisition
of
DPTL
project,
start
of
more
check
posts
in
MBCPNL
and
other
regular
traffic
growth.
The
current
portfolio
is
fully
funded,
with
the
only
outstanding
equity
commitment
of
~Rs790m
for
acquisition
of
Mysore
‐
Bellary
project.
SIPL
is
also
actively
considering
buying
few
stranded
projects
if
available
at
attractive
prices.
Outlook
and
valuation
:
The
stock
is
trading
at
core
PE
of
16x
FY17E
earnings.
We
have
cut
our
earnings
by
~20%
for
FY16
and
FY17
to
factor
in
weak
execution
in
current
quarter
and
delay
in
getting
new
orders.
We
continue
to
believe
the
healthy
and
improving
outlook
across
segments
augur
well
for
future
growth.
Limited
commitment
on
the
current
BOT
portfolio
and
well
‐
funded
balance
sheet
makes
it
well
‐
placed
to
benefit
from
improved
ordering
in
the
Road
sector.
Exhibit
1:
SOTP
Particulars
Method
Multiple
Value
(Rs
m) Per
Share
Value
Construction
business
PER
17x
March'17
33,393
197
BOT
(80%)
NPV
Ke
15%
FY17
NPV
24,346
144
Total
57,739
340
Source:
PL
Research
Exhibit
2:
NPV
Snapshot
Particulars
Stake
NVP
SEL
valuation
Per
share
value
Ahmedabad
Ring
road
100
4,520
4,520
26.7
Aurangabad
Jalna
100
2,887
2,887
17.0
Nagpur
Seoni
100
378
378
2.2
Dhule
Maharashtra
40
5,437
5,437
32.1
Bijapur
Hungud
77
7,996
6,157
36.3
Hyderabad
Yadgiri
100
2,138
2,138
12.6
Rohtak
Panipat
100
1,901
1,901
11.2
Mumbai
Nashik
20
7,025
1,405
8.3
Maharashtra
Checkpost
90
10,061
7,847
46.3
Shreenathji
Udaipur
100
4,247
4,247
25.0
Rajshamand
Bhilwara
100
3,063
3,063
18.1
Rohtak
Hisar
Tollway
Private
100
2,225
2,225
13.1
Karnatka
State
Highway
100
950
950
5.6
Total
52,829
43,156
254
Exhibit
3:
Q3FY16
Result
Overview
(Rs
m)
Y/e
March
Q3FY16
Q3FY15
YoY
gr.
(%)
Q2FY16
9MFY16
9MFY15
YoY
gr.
(%)
Net
Sales
7,531
7,223
4.3
7,459
23,283
20,024
16.3
Expenditure
Construction
Expenses
6,082
5,927
2.6
6,024
18,904
16,469
14.8
%
of
Net
Sales
80.8
82.1
80.8
81.2
82.2
Personnel
Cost
311
265
17.1
319
913
706
29.3
%
of
Net
Sales
4.1
3.7
4.3
3.9
3.5
Others
400
254
57.3
308
1,026
762
34.6
%
of
Net
Sales
5.3
3.5
4.1
4.4
3.8
Total
Expenditure
6,792
6,489
4.7
6,652
20,843
17,979
15.9
EBITDA
739
734
0.6
807
2,440
2,045
19.3
Margin
(%)
9.8
10.2
10.8
10.5
10.2
Other
income
12
13
(6.8)
28
57
46
23.7
Depreciation
218
226
(3.9)
214
635
669
(5.1)
EBIT
521
508
2.6
593
1,805
1,376
31.2
Interest
204
199
2.2
176
592
641
(7.8)
PBT
329
321
2.5
445
1,270
781
62.7
Total
Taxes
69
(57)
(222.7)
66
236
32
636.9
Adjusted
PAT
274
377
(27.5)
262
930
749
24.2
Reported
PAT
260
377
(31.2)
262
916
749
22.4
Sales
Roads
5,596
4,453
25.7
5,926
16,588
13,710
21.0
EPC
1,315
718
83.2
1,316
3,627
4,967
(27.0)
BOT
4,281
3,735
14.6
4,610
12,961
8,723
48.6
Irrigation
1,004
1,376
(27.1)
315
3,324
2,404
38.3
Mining
922
1,387
(33.6)
1,198
3,322
3,869
(14.1)
Power
9
7
44.6
20
48
41
17.1
Source:
Company
Data,
PL
Research
February
09,
2016
4
Income
Statement
(Rs
m)
Y/e
March
2015
2016E
2017E
2018E
Net Revenue
30,041
32,256
36,127
45,158
Raw
Material
Expenses
—
—
—
—
Gross
Profit
30,041
32,256
36,127
45,158
Employee
Cost
974
819
921
1,135
Other
Expenses
25,722
28,067
31,179
38,946
EBITDA
3,345
3,370
4,027
5,077
Depr.
&
Amortization
817
968
975
1,219
Net
Interest
891
881
1,068
1,128
Other
Income
164
175
193
212
Profit before Tax
1,802
1,697
2,176
2,941
Total
Tax
321
373
544
735
Profit after Tax
1,480
1,324
1,632
2,206
Ex
‐
Od
items
/
Min.
Int.
—
—
—
—
Adj. PAT
1,480
1,324
1,632
2,206
Avg. Shares O/S (m)
169.6
169.6
169.6
169.6
EPS (Rs.)
8.7
7.8
9.6
13.0
Cash
Flow
Abstract
(Rs
m)
Y/e
March
2015
2016E
2017E
2018E
C/F
from
Operations
(1,673)
4,109
3,520
1,273
C/F
from
Investing
(1,403)
(1,800)
(1,800)
(1,800)
C/F
from
Financing
2,683
(969)
(656)
(717)
Inc.
/
Dec.
in
Cash
(393)
1,340
1,064
(1,244)
Opening
Cash
762
351
1,691
2,755
Closing
Cash
369
1,691
2,755
1,511
FCFF
(3,521)
1,928
1,152
(1,156)
FCFE
(2,771)
1,978
1,702
(606)
Key
Financial
Metrics
Y/e
March
2015
2016E
2017E
2018E
Growth
Revenue
(%)
27.4
7.4
12.0
25.0
EBITDA
(%)
34.1
0.8
19.5
26.1
PAT
(%)
39.2
(10.6)
23.3
35.2
EPS
(%)
24.5
(10.6)
23.3
35.2
Profitability
EBITDA
Margin
(%)
11.1
10.4
11.1
11.2
PAT
Margin
(%)
4.9
4.1
4.5
4.9
RoCE
(%)
10.1
8.1
9.3
10.7
RoE
(%)
12.8
9.3
10.5
12.7
Balance
Sheet
Net
Debt
:
Equity
0.7
0.5
0.4
0.5
Net
Wrkng
Cap.
(days)
—
—
—
—
Valuation
PER
(x)
34.2
38.2
31.0
22.9
P
/
B
(x)
3.7
3.4
3.1
2.8
EV
/
EBITDA
(x)
17.8
17.3
14.4
11.7
EV
/
Sales
(x)
2.0
1.8
1.6
1.3
Earnings
Quality
Eff.
Tax
Rate
17.8
22.0
25.0
25.0
Other
Inc
/
PBT
9.1
10.3
8.9
7.2
Eff.
Depr.
Rate
(%)
9.5
9.8
8.7
9.8
FCFE
/
PAT
(187.2)
149.5
104.3
(27.5)
Source:
Company
Data,
PL
Research.
Balance
Sheet
Abstract
(Rs
m)
Y/e
March
2015
2016E
2017E
2018E
Shareholder's
Funds
13,628
14,813
16,307
18,374
Total
Debt
9,383
9,433
9,983
10,533
Other
Liabilities
244
244
244
244
Total Liabilities
23,255
24,490
26,534
29,151
Net
Fixed
Assets
5,465
5,797
6,122
6,202
Goodwill
—
—
—
—
Investments
5,313
5,813
6,313
6,813
Net
Current
Assets
12,478
12,881
14,100
16,137
Cash
&
Equivalents
351
1,691
2,755
1,511
Other
Current
Assets
24,229
26,070
28,703
35,879
Current
Liabilities
12,102
14,880
17,358
21,253
Other
Assets
—
—
—
—
Total Assets
23,255
24,491
26,534
29,152
Quarterly
Financials
(Rs
m)
Y/e
March
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Net Revenue
9,674
8,293
7,459
7,531
EBITDA
957
894
807
739
%
of
revenue
9.9
10.8
10.8
9.8
Depr.
&
Amortization
148
203
214
218
Net
Interest
250
212
176
204
Other
Income
118
17
28
12
Profit before Tax
678
496
445
329
Total
Tax
289
101
66
69
Profit after Tax
389
395
380
274
Adj. PAT
389
395
380
260
Source:
Company
Data,
PL
Research.
Prabhudas
Lilladher
Pvt.
Ltd.
3rd
Floor,
Sadhana
House,
570,
P.
B.
Marg,
Worli,
Mumbai
‐
400
018,
India
Tel:
(91
22)
6632
2222
Fax:
(91
22)
6632
2209
Rating Distribution of Research Coverage
PL’s Recommendation Nomenclature
46.7%
42.1%
11.2%
0.0%
0%
10%
20%
30%
40%
50%
BUY
Accumulate
Reduce
Sell
%
of
To
ta
l
Co
ve
ra
ge
BUY
:
Over
15%
Outperformance
to
Sensex
over
12
‐
months
Accumulate
:
Outperformance
to
Sensex
over
12
‐
months
Reduce
:
Underperformance
to
Sensex
over
12
‐
months
Sell
:
Over
15%
underperformance
to
Sensex
over
12
‐
months
Trading Buy
:
Over
10%
absolute
upside
in
1
‐
month
Trading Sell
:
Over
10%
absolute
decline
in
1
‐
month
Not Rated (NR)
:
No
specific
call
on
the
stock
Under Review (UR)
:
Rating
likely
to
change
shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), 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:
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a
subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third
party financial/other products, details in respect of which are available at www.plindia.com
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to
others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its
affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend
upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies
referred to in this report and they may have used the research material prior to publication.
PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.
PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.
PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of
publication of the research report.
PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.
PL or its associates might have received compensation from the subject company in the past twelve months.
PL or its associates might have managed or co‐managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve
months.
PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months
PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.
PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject
Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.
It is confirmed that Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), 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.
The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his
or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company
Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein,
and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o
the foregoing, among other things, may give rise to real or potential conflicts of interest.
PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving
such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any
other potential conflict of interests with respect to any recommendation and other related information and opinions.
DISCLAIMER/DISCLOSURES (FOR US CLIENTS)
ANALYST CERTIFICATION
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal
views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report
Terms & conditions and other disclosures:
This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are
resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to
satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and
trading securities held by a research analyst account.
This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and
interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon
this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas
Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").
