Buy Sadbhav Engineering; target of Rs 388: Edelweiss

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26 Aug, 2025 12:21

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Sadbhav Engineering’s (SEL) top line grew 17% YoY in Q1FY18 driven by commencement of work on hybrid annuity (HAM) projects and pick up in execution on EPC projects. While interest cost catapulted 87% YoY, MAT credit led to PAT jumping 14% YoY to INR555mn. Traffic on BOT projects grew ~2% YoY. While we envisage execution of HAM projects to boost FY18 top line, order inflows remain critical to improve revenue visibility (book-to-bill at 2.4x) and will determine stock performance. Maintain ‘BUY’ with SOTP-based target price of INR388.

With a strong bid pipeline, robust BOT portfolio and best-in-class execution skill, we expect SEL to perform well going ahead. We expect higher revenue visibility in the EPC arm and better cash flow generation in the BOT subsidiary to trigger re-rating going ahead. We maintain ‘BUY’ with SOTP-based target price of INR388 (INR161 from EPC business at 16x FY19E P/E and balance from DCF valuation of BOT projects).

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