Buy Sadbhav Engineering; target of Rs 350: ICICI Direct

ICICI Direct's research report on Sadbhav Engineering

Sadbhav Engineering (SEL’s) topline de-grew 3.5% YoY to Rs 911.4 crore (our estimate: Rs 1004.3 crore) EBITDA margins expanded 44 bps YoY to 11.7% (our estimate: 11.5%) led by lower other expenses (2.0% as percentage of sales in Q1FY19 vs. 6.7% in Q1FY19) PAT grew 14.4% YoY to Rs 63.4 crore (our estimate: Rs 61.3 crore) on account of high EBITDA margin and higher other income (Rs 10.8 crore in Q1FY19 vs Rs 3.9 crore in Q1FY18) In Q1FY19, SEL issued and allotted 1700 NCDs having face value of Rs 10 lakh each aggregating to Rs 170 crore on private placement basis.

Outlook

We like SEL, given its strong orderbook, management bandwidth, strong execution capabilities and robust set of opportunities ahead. Consequently, we expect revenues to grow at 16.7% CAGR to Rs 4776.7 crore in FY18-20E. Furthermore, its robust project pipeline drives our comfort over SEL’s capabilities to capture the opportunities ahead. Hence, we maintain our BUY recommendation on the stock with an SOTP based target price of Rs 350/share. We now value SEL’s 69% stake in SIPL at Rs 159/share and EPC business at Rs 193/share (8.0x FY20E EV/EBITDA implying PE multiple of 11.1x FY20E EPS).