Sadbhav Infrastructure: Monetisation of road assets can ease group debt worries

Jitendra Kumar Gupta

Moneycontrol Research

A few years ago, Sadbhav Infrastructure was demerged from Sadbhav Engineering to resolve the group’s debt issues and unlock value through a separate listing of its asset or project business. But it hardly resolved the group’s concerns. Now media reports suggest the Canada Pension Plan Investment Board (CPPIB), with a stake in L&T InvIT, is looking to acquire or invest close to Rs 3,000 crore through the InvIT in 12 of Sadbhav Infrastructure’s projects.

While the company has been scouting for financial investors for quite some time, the contours of the deal are not yet known.

Should the investment come through, this could be a good move for the group. Sadbhav Infrastructure has 11 under-construction projects including HAM projects where close to Rs 1,000 crore of equity infusion is estimated. This will help it repay some of the loans taken from the parent company, Sadbhav Engineering, which in turn needs working capital to execute its existing order book of close to Rs 13,000 crore.

The potential investment would also bail out the group from deteriorating financial conditions and improve its consolidated balance sheet. During Q3FY19, Sadbhav Infrastructure, which gets consolidated into Sadbhav Engineering, incurred finance cost of close to Rs 3,000 crore and reported a quarterly loss of Rs 606 crore before tax and exceptional transactions. The company is sitting on a debt of about Rs 8,500 crore on a negative net worth of Rs 255 crore.

After the IL&FS crisis, the number of road projects on sale has increased. In this backdrop, it is unlikely that the deal would fetch great valuations. What is important at this juncture is that divestment of assets through InvIT could reduce the group’s debt and provide growth capital needed for the business. This potential reflected in the positive stock price movement of both Sadbhav Engineering and Sadbhav Infrastructure.