The company is aiming to break even this year and become profitable from FY20.
Sadbhav Infrastructure Projects, part of the Sadbhav group that holds several road assets, is finally getting some traction as the company is narrowing down its losses, cutting down interest cost and generating greater internal cash each quarter.
The company is aiming to break even this year and become profitable from FY20. As existing projects throw more cash due to increase in traffic and tariff hike, the company is expected to generate close to Rs 500 crore in internal cash, which along with other sources of cash generation would be used for upcoming projects as part of its equity contribution. This would not only provide growth, but ease market concerns about funding, which was a cause of concern in the past.
During the March quarter, the company narrowed down losses to Rs 84 crore as against a loss of Rs 94 crore in the corresponding quarter last year. In 2017, the company had refinanced its project debt in addition to Rs 145 crore repayment of debt in FY18. A majority of the benefits would be visible in FY19 with the company expecting its annual interest saving to be in the region of about Rs 40 crore.
That apart, most of its projects are witnessing strong growth in traffic. During the March quarter, its average traffic growth across projects was in the region of about 11% against 3-3.5% traffic growth in the first half of the FY18.
On top of this, the hike in toll prices has improved the overall operating performance of the projects significantly. This is also reflected in its quarterly performance. During the March quarter, the company witnessed 96 percent growth in revenues. However, because of new project-related costs, including the escalation of costs related to the project in Maharashtra, operating profits grew at a relatively slower pace of 25% to Rs 284 crore.
Room for growth
With a strong order book pipeline and increasing contribution from existing projects, the company is expecting growth to continue. The management has guided to revenue growth of about 15-20% over the next two years and possibly start making profits from the FY20.Although the company is already making cash profits, accounting profits are down because of depreciation. Accounting profits will go up as new projects start to contribute and existing projects stabilise. In terms of valuations, the stock is trading at 7 times its enterprise value to estimated EBIDTA of FY19, which is reasonable considering the strong earnings growth and internal cash generation.