Buy Sadbhav Engineering; target of Rs 87: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sadbhav Engineering

Sadbhav Engineering reported disappointing numbers with revenues falling 73% YoY and margins contracting over 400bps YoY to 8.5% as execution was subdued due to nationwide lockdown and low labour availability. Management expects to receive Rs3.4bn (Rs2.7bn for Ahmedabad Ring Road and Rs0.7bn balance from earlier 8 BOT assets) by 3QFY21E from Canadian pension fund for its assets stake sale. Further, the company is gradually ramping up execution across project sites with labour availability reaching ~80% pre-covid levels. With full labour force expected to be back post monsoon and commencement of three large EPC projects worth Rs36bn; company targets construction run-rate of Rs90-100mn/day from Oct’20. SADE is one of the most reputed and credible EPC companies in infrastructure space with a strong execution track record. Lately, the company faced pressures due to muted awarding, delay in receiving ADs, environment clearance issues, etc. leading to subdued revenues and stretched working capital cycle. But eventually all projects received ADs and conclusion of asset monetization deal which resulted in significant reduction of net debt.

Outlook

At CMP, the stock trades at a P/E of 24.1x/8.4x on FY21E/FY22E EPS and is trading at an EV of 8.6x/6x FY21E/FY22E EBITDA. We maintain BUY rating with a TP of Rs87.

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