Buy Sadbhav Engineering; target of Rs 436: HDFC Securities

HDFC Securities' research report on Sadbhav Engineering

SADE 1QFY19 net revenues at Rs 9.1bn was 11.0% below our estimates. EBITDA at Rs 1.1bn was 9.1% below our estimates, with EBITDA margin expansion of 43.9bps YoY to 11.7%. Increased mining equipment leasing/interest on subcontractor advances/FDR interest income contributed to 76% YoY increase in other income resulting in PAT of Rs 634mn, 20.1% above estimates. SEL has won Rs 13.1bn orders in 1QFY19 leading to an all time high order book of Rs 137.1bn ex L1 in Rs 16.5bn Mumbai Nagpur EPC package. Though SEL’s execution was lower than estimated, we expect it to rise significantly from 2HFY19E as 5 new HAM projects will add to revenue.

Outlook

SEL has submitted for ‘delinking’ 6.5/8km in Una Kodinar/Kathgodam respectively on account of land challenges. With a record order book (geographically diversified), opportunities across segments, debt under control and WC improvement likely under HAM projects, we maintain BUY with SOTP based TP of Rs 436/sh.