Buy Sadbhav Engineering; target of Rs 87: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sadbhav Engineering

Sadbhav Engineering posted a decent set of numbers with revenues in line with our estimates while margins remain healthy at 12.1%, beating our and street estimates. Execution across project sites is picking up sharply with material and labour force availability both reaching pre-covid levels. With 3 large projects moving to full-fledged execution (leading towards daily run-rate of Rs90-100mn vs current Rs70mn), labour force at pre-covid levels and strong bid pipeline, management guided revenues to be ~Rs22bn in FY21E and Rs35-36bn in FY22E with EBITDAM expected be ~12%. 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. Those pressures are easing as all projects have now received ADs, receipt of two large orders and conclusion of asset monetization deal resulting in significant net debt reduction. On the back of strong execution, toll revenues and healthy management guidance we revise our FY21 earnings estimates from Rs351mn to Rs675mn while keeping FY22/23 estimates largely unchanged.

Outlook

At CMP, the stock trades at a P/E of 12.3x/ 8.2x on FY21E/ FY22E EPS and is trading at an EV of 6.9x/ 5.6x FY21E/ FY22E EBITDA. We maintain BUY rating with a TP of Rs87 (Same as earlier).

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